KARACHI: During the previous six months, foreign investors withdrew $660 million from Naya Pakistan Certificates (NPC), adding to the country’s already dire situation of declining foreign exchange reserves.
Even if the nation hasn’t yet made a payment on its external commitments and is on schedule with all of its international debt, the withdrawal demonstrates the rising trust gap in the nation’s ability to make payments.
The issue has only gotten worse due to the precarious position of foreign exchange reserves, limited economic expansion, and increased default risk rumours. Independent economists and professionals in the financial markets have been expressing concern that the economy is suffering greatly from the protracted political instability.
According to the most recent information provided by the State Bank of Pakistan (SBP), foreign investment in NPC increased steadily up until March of this year. However, the uncertainty caused by the change in government in April caused a decline in inflows, which fell to just $763 million on September 30 from $1.423 billion on March 31 and a $660 million outflow.
Since April, investments have decreased by almost half, at $763 million.
The data also reveals that on September 30, 2021, the total investment in NPC was $1.178 billion, and by December 31, 2021, it had grown to $1.338 billion. In March of this year, it rose further to $1.423 billion, but it then started to decline once more and in September, it only reached $763 million.
After being shocked by outflows of such investments (approximately $3.5 billion) in domestic bonds including treasury bills and Pakistan Investment Bonds, the government introduced Roshan Digital Account (RDA) in September 2020 to attract foreign investors (PIBs). The rapid exodus occurred shortly after Covid-19’s appearance in March 2020. The country’s external accounts were severely impacted, and the global economy was also suffering as a result of the pandemic.
By the end of October of this year, RDA, which also provides NPCs, had been successful in attracting roughly $5.295 billion since its launch, including $3.344 billion for NPCs. However, the foreign investment was decreased to its lowest amount of $763m due to NPC withdrawals and maturities.
The reason for this rising lack of trust among foreign investors, primarily expatriate Pakistanis, is domestic economic activity. According to recent reports, the IMF has postponed negotiations.
due to a growing budget deficit and poor tax collections. The market was already under stress from a lack of dollars when the reports were released.
Exports did not exhibit a growing trend during the first quarter of the current fiscal year, despite the fact that the current account deficit decreased. The purchasing power of consumers is falling, and the developed economies are also experiencing a situation similar to a recession. Pakistan mostly exports textile manufactured goods, primarily to Europe and the United States.
The Sukuk bonds must also get another sizable payment of $1 billion by December 5 of current year. Pakistan will make the payment, the finance minister repeatedly reaffirmed. The renewal of Chinese loans, however, raises more serious issues. The finance ministry has still not issued a clear declaration regarding the refinancing of these loans.