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NADRA and SBP lead collaborative reforms for financial stability in Pakistan

NADRA and SBP lead collaborative reforms for financial stability in Pakistan
 

The State Bank of Pakistan (SBP) and the National Database and Registration Authority (NADRA) are leading transformative efforts in a strategic collaboration to strengthen Pakistan’s economic resilience. The Federal Board of Revenue (FBR) and NADRA have partnered to extend the tax base through creative data integration, while the SBP has instituted a novel biometric verification requirement for foreign currency transactions above US$500. These recent developments demonstrate a dual-pronged strategy. Together, these efforts represent a comprehensive plan to tackle the country’s economic problems, promote openness, and move it closer to financial stability.

 NADRA’s role in digitalization

The Chairman of NADRA, Lt. Gen. Muhammad Munir Afsar, is working with FBR to expand Pakistan’s tax base. During a recent meeting with the Islamabad Chambers of Commerce and Industry, the main focus was on NADRA’s low-cost e-services platform, e-Sahulat, which has more than 17,000 living franchisees. Ahsan Zafar Bakhtawari, President of ICCI, praised NADRA’s digitalization efforts during the conference and advocated for the creation of facilitation desks at ICCI. While acknowledging the burden FBR is placing on current taxpayers, he reaffirmed the business community’s support for expanding the tax base.

A NADRA database for service suppliers should be created, according to VP ICCI Faad Waheed, who highlighted the database’s potential to encourage economic activity. A key component of effective citizen services is e-governance, according to Vice President Engineer Azhar ul Islam Zafar. Group Leader ICCI Khalid Iqbal Malik emphasized NADRA’s beneficial influence on international commercial relations while highlighting the organization’s successful foreign digital ID projects. Underscoring the significance of the FPCCI-NADRA collaboration, Zafar Bakhtawari believes it is essential to enabling businesses across the country. This partnership between ICCI and NADRA is a big step towards using technology in Pakistan to boost the country’s economy and implement tax reform.

State Bank of Pakistan’s biometric verification mandate

To reduce dollar hoarding, the SBP will now require biometric identification for foreign exchange purchases larger than $500. The decision was considered on January 3, 2024, during a meeting of the SIFC Apex Committee. It contains a $5,000 annual restriction and a $5,000 purchase limit for travel purposes.

Apart from the biometric mandate, the SBP has implemented a $10,000 daily purchase limit and a $100,000 annual cap. Notably, to combat illicit foreign exchange transactions, the Federal Investigation Agency will work with SBP and other pertinent agencies.

According to a notification in 2021, the SBP first suggested requiring biometric authentication for purchases of $500 or more. The implementation of this will be largely dependent on exchange companies, who will keep copies of identification documents and use biometric verification for transactions over the threshold. These initiatives support the SBP’s overarching plan to counter hoarding and deal with the dollar issue, strengthening regulatory authority and openness in the field of foreign exchange transactions.

Comprehensive reforms

To improve economic circumstances and strengthen financial institutions, SBP and NADRA are working together to achieve comprehensive reforms. With SBP placing limits on foreign currency purchases and NADRA requiring biometric identification for large transactions, the main goal is to promote accountability and transparency in financial activities. The joint endeavor seeks to counteract the practice of hoarding dollars and advance a more stable and responsible financial environment.

Collaboration between NADRA and the business community

NADRA stressed the importance of working with the business community to improve economic stability during a recent meeting with the Islamabad Chamber of Commerce and Industry (ICCI). The influential e-Sahulat platform was one of the major projects of NADRA that was highlighted in the discussion. With more than 17,000 active franchisees, this affordable e-services network guarantees safe payment and collection options, officials say. The business community applauded NADRA’s efforts to promote digitization, led by ICCI President Ahsan Zafar Bakhtawari. The joint goal is to make the most of NADRA’s activities to promote economic growth, provide effective services to the public, and help businesses generate income.

Biometric verification and exchange reforms

Purchases of foreign currency are subject to strict regulations from the SBP, including the biometric authentication requirement for each transaction over $500. Declared at the special Investment Facilitation Council (SIFC) Apex Committee meeting, the SBP’s directive attempts to prevent dollar hoarding and guarantee transparency in currency transactions.

In particular, the SBP has lowered the annual cap from $60,000 to $30,000 and decreased the U.S. dollar purchase limit for travel from $10,000 to $5,000. Exchange company purchases of more than $2,000 have to go through PKR accounts. For purchases of U.S. dollars, the central bank has set a $10,000 daily cap and a $100,000 annual limit.

This action is a component of larger exchange firm sector changes that aim to improve regulatory oversight, transparency, and documentation. The Exchange Companies Manual was amended with a focus on strict limits on selling foreign currency to individuals, biometric verification for Pakistani nationals, and the retention of identity documents for transactions above $500. The SBP, the Federal Investigation Agency (FIA), and other pertinent law enforcement agencies will work together to look into and stop illicit foreign exchange operations. All of these steps taken together constitute a comprehensive endeavor to regulate the exchange industry, guaranteeing responsibility and tackling problems associated with Pakistan’s ongoing dollar crisis.

The government’s response to economic challenges

The Government of Pakistan has stepped up measures to combat dollar hoarding and smuggling in response to a serious scarcity of the currency, realizing that organized criminal organizations have been responsible for significant economic losses. Targeting individuals, organizations, and government officials engaged in illicit economic activity, a thorough crackdown has been launched.

With the Pakistani currency appreciating by 3.5 percent vs. the U.S. dollar, this decisive action has produced outstanding results, resulting in a noteworthy gain of Rs11 in a single day. The price of gold per tola (11.66 grams) in Pakistan has reached Rs222,300 due to a 4.5 percent decrease in price, or Rs10,500, as a result of the exchange rate reaching Rs312 versus the dollar in early February.

The State Bank and the FIA are working together to take joint action against illicit foreign exchange operations as part of the government’s proactive initiatives. The Director-General of the FIA and the SBP Governor held a high level meeting to discuss a comprehensive plan to capture and prosecute illegal foreign exchange operations and speculators nationwide. SBP and FIA-authorized teams are collaborating to stop illicit foreign exchange activity and speculation while making sure that all applicable regulations are followed.

The government highlights that only banks and approved exchange organizations are allowed to conduct foreign exchange business in Pakistan, acknowledging the detrimental effects of illegal foreign exchange activities on the open market exchange rate. The objective of the crackdown is to reduce the difference between open market and interbank exchange rates, maintain currency market stability, and address the economic difficulties brought on by illicit operations and a scarcity of dollars.

Enforcement and regulatory measures

A thorough strategy to identify and bring charges against individuals engaged in illegal foreign exchange operations so that reforms can be enforced was a key item in the presentation at FIA and SBP’s high-level meeting.

Aiming to reinforce the legal framework governing foreign exchange transactions, the regulatory measures are expected to be approved at the next SIFC meeting. To preserve market integrity and stop illicit activities that have a negative influence on the currency market, these steps are essential. SBP and FIA’s cooperation demonstrates their dedication to implementing these changes for a stronger and more open financial system.

The cooperative efforts of NADRA and SBP are essential components of a larger plan intended to strengthen Pakistan’s economic base. A proactive strategy for attaining long-term economic stability is shown in the coordinated efforts of regulatory agencies, financial institutions, and companies to improve openness, accountability, and collaboration. The combination of SBP enforcing reforms and NADRA pushing digitalization is a potential path for Pakistan’s economic growth and resilience.

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