KARACHI: Dollar inflows through Roshan Digital Account (RDA) decreased in April over the preceding month.

According to data released by the State Bank of Pakistan (SBP) on Tuesday, inflows in April were $171 million, a six per cent decline from March’s $182m.

The State Bank introduced the RDA in September 2020 following an outflow of foreign investments from domestic bonds. The RDA offers up to 8pc profit on US dollar investments and is considered highly competitive internationally.

The slow inflows result from import restrictions and a curb on profit repatriation to bolster the country’s reserves, creating uncertainty for investors. The looming threat of a sovereign default in June 2023 weighs on investors. Despite reaching over $9 billion with support from the IMF and friendly countries, the meagre foreign exchange reserves are ins­ufficient to restore inve­s­tor confidence in the economy.

So far, the country has received a total of $7.831bn through the RDA. Of this, $4.925bn was utilised locally, while the rest, $1.587 bn, was repatriated.

Despite the record return on domestic bonds, foreign investors could not be attracted. Due to the 22pc policy interest rate, the cut-off yield on domestic bonds, particularly T-bills, is highly attractive, as they offer around 21pc.

However, the State Bank’s approach is against repatriating dollars from Pakistan, drastically hitting the inflow of foreign investment. The already existing foreign investors could not send out their entire profits in FY23.

The situation has eased this year but needs more to satisfy the investors.

Since the country has been unable to improve its ratings, foreign investors hesitate to enter the Pakistani market.

Most international rating agencies lowered Pakistan’s ratings when the country was struggling to avoid sovereign default at the end of June 2023. Due to lower ratings and instability of foreign exchange reserves, the government could not enter the international commercial market to raise dollars through the launch of Eurobonds.

Only the equity market, witnessing a record-breaking spree, attracted foreign portfolio investments.

According to the SBP data, the number of RDA accounts opened increased to 689,650 from 679,792 a month ago.

Further details showed that of the total liability, $840m is with Naya Pakistan Certificates, $317m in conventional NPCs, and $523m in Islamic instruments.

The financial sector believes there is an apparent reason for the slowdown of inflows through the RDA. It considers political uncertainty as once again becoming the economy’s number one problem.

Published in Dawn, May 22nd, 2024

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