KARACHI: The foreign investors withdrew $660 million from Naya Pakistan Certificates (NPC) during the last six months, compounding the hardship for the country already facing a serious problem of falling foreign exchange reserves.

The withdrawal reflects the growing trust deficit in the country’s ability to make payments, though it has yet not defaulted on the external front and is making timely payments of all foreign obligations.

However, the weak position of foreign exchange reserves amid poor economic growth with rising speculations about the growing default risks has made the situation worse. Financial market experts and independent economists have been warning that the prolonged political uncertainty is taking a heavy toll on the economy.

The latest data released by the State Bank of Pakistan (SBP) shows that the foreign investment in NPC kept increasing till March this year, but the change of government in April created uncertainty and the inflows dropped to just $763 million on Sept 30 from $1.423 billion recorded on March 31, an outflow of $660m.

Investments shrink by nearly half to $763m by end of September since April

The data further shows that the total investment in NPC stood at $1.178bn on Sept 30, 2021, which increased to $1.338bn on Dec 31 of that year. It further increased to $1.423bn in March this year but started falling again and reached as low as $763m in September.

The government launched Roshan Digital Account (RDA) in September 2020 to attract foreign investments after facing a shock from outflows of such investments (about $3.5 billion) in domestic bonds like treasury bills and Pakistan Investment Bonds (PIBs). The quick outflows took place just after the emergence of Covid-19 in March 2020. It drastically hit the country’s external accounts, while the entire world was under the pressure of economic slowdown due to the pandemic.

Since its launch, RDA, which also offers NPCs, succeeded in attracting about $5.295bn, including $3.344bn for NPCs, by the end of October this year. However, the withdrawal and maturity of NPCs reduced the foreign investment to the lowest level of $763m.

Domestic economic activities are also responsible for this growing trust deficit among foreign investors, mostly overseas Pakistanis. Latest reports suggested that the IMF has delayed talks

due to low revenue collections and an expanded fiscal deficit. The reports directly hit the market already under pressure of dollar scarcity.

Though the current account deficit declined during the first quarter of the current fiscal year, exports did not show an increasing trend. The developed economies are also facing a recession-like situation and consumers’ purchasing power declines. Pakistan mostly exports textile made-ups, particularly to the United States and Europe.

At the same time, another big payment of $1bn is due by Dec 5 this year against Sukuk bonds. The finance minister assured several times that Pakistan will make the payment. However, what is more concerning is the rollover of Chinese loans. There is still no clear statement from the finance ministry about the rollover of these loans.

Published in Dawn, November 19th, 2022