KARACHI: December marked a significant milestone for the equity market, as it received a record inflow of $65 million through the Special Convertible Rupee Account (SCRA), propelling the market to an all-time high.

The SCRA, a financial mechanism, allows foreign investors to convert funds into Pakistani rupees for investment in the country’s equity and debt markets and later reconvert these into foreign currency.

Data from the State Bank of Pakistan (SBP) showed that December 2023 alone witnessed SCRA inflows of $64.9m under equity, whereas $103,000 was received under the “others” category. There was no inflow under the remaining two heads. i.e. Treasury bills and Pakistan Investment Bonds (PIBs).

Before the Covid-19 pandemic in 2019, Pakistan had attracted up to $5 billion under the SCRA for domestic bonds (T-bills and PIBs). However, the pandemic’s global impact led to a rapid outflow of over $4bn from these investments.

Since then, the country has not received any significant inflows for domestic bonds, while the inflows for the equity market also remained insignificant.

However, the recent months have shown a revival in investor confidence. The total SCRA inflows for the first half (July-December) of the current fiscal year reached $222m, including $205.8m for equity, $16m for T-bills, $61,000 for PIBs and $103,000 for “others”.

The United States emerged as the largest contributor, with $127.2m of the total inflows. Other significant sources included the United Kingdom ($40.1m), Sweden ($12.1m), the United Arab Emirates ($9.36m), the Cayman Islands ($8.9m), Canada ($7.18m), Luxembourg ($6.98m), and Switzerland ($6.42m).

Almost all inflows from these countries were for equity, except the UK, whose total inflows comprised $23.99m for equity and $16m for T-bills. There was no inflow for T-bills from any other country.

On the other hand, the total outflows for the first half of fiscal 2024 stood at $161.7m, leaving a net inflow of $60.26m.

These inflows, though reflective of growing foreign investor confidence, still fall short of the previous records for domestic bonds. The domestic bonds currently offer returns of around 21.5 per cent, which is substantial compared to returns on dollar accounts.

Recent developments have bolstered the rupee, which has been stable at around 282 to the US dollar.

The State Bank’s reserves have also surged to a six-month high of $8.2bn, stabilising the exchange rate and encouraging exporters to sell their holdings.

While the exact sources of these $1.2bn inflows that boosted the SBP’s reserves remain officially undisclosed, market sources attribute these to international financial institutions like the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank.

Published in Dawn, January 7th, 2024

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