Capital Control and Rupee Convertibility: Pakistan

Capital Control and Rupee Convertibility: Pakistan

An open capital account for a country means that capital may flow in and out of the domestic economy without impediments. In Pakistan there is a vibrant foreign exchange market including interbank foreign currency market and a network of registered exchange companies and resilient central bank. Open capital accounts facilitate investment and growth of the economy and stabilize consumption pattern and output of the economy. Currently monetary easing in developed countries like US and UK has led to lower interest rates which enabled capital flight to developing counties where interest rates are higher. Occasionally large capital outflow or inflow can have non-desirable economic outcomes including banking and currency crisis.

The following is the characteristics of Pakistan’s capital accounts:

       Residents or nonresidents can open Foreign Currency Accounts (FCA) at commercial banks with remittances from abroad, foreign travelers’ cheques, or foreign currency in cash, but not with income from export or similar activities.
      
       Nonresidents or foreign firms may open domestic currency accounts that are fully convertible into foreign currency, so long as foreign funds are channeled through the banking system.
      
       Nonresidents may acquire listed securities with remittances from abroad with no restrictions on the repatriation of capital gains, dividends, or receipts from the disposal of such securities.
      
       Nonresidents are free to trade in registered corporate debt instruments and bonds listed on the stock exchange, federal investment bonds, or Pakistani investment bonds as well as market treasury bills.
      
       Branches of foreign banks and foreign-controlled investment banks may also engage in these activities.
Currently, the only notable restrictions on the capital account relate to the limits on the amount of domestic currency that a traveler may physically carry overseas (PKR500 to India and PKR3,000 to other
countries) and on the amount Pakistani residents may hold in overseas bank accounts (a maximum of USD1,000 in all countries other than India, Bangladesh, Afghanistan, and Israel, where Pakistani residents may not own any bank accounts.)