Within first four days of October Pakistan attracted over $35 million net portfolio investment. This came as a reversal of the trend seen in the first quarter of the year. Between July 1-September 13 Pakistan saw a net outflow of $62 million from special rupee convertible accounts which are used for portfolio investment.
It was in the second half of September that portfolio investment started trickling in and it accelerated at the start of this month.
Bankers and stockbrokers said most of the portfolio investment has so far come from overseas Pakistanis and foreign investors in the US. As the US would not like to see political tensions mount, “so, it is natural for Pakistani and global investors in America to take an optimistic view (of Pakistan’s financial market),” said treasurer of a local bank.
But treasurer of a foreign bank said that after the recent interest rate cut in America the US-based investors find Pakistan’s financial market more attractive. Between October 1-4, more than $67 million net portfolio investment was received. (However, as the UK-based investors sold the stocks of a power generating company, this caused an outflow of $42 million, thus offsetting the impact of sizable inflows from the US and elsewhere).
On balance, improved inflow of portfolio investment and easing of political tensions pushed stock prices up and the Karachi Stock Exchange 100-share index gained 5.6 per cent in the first week of this month. Increased foreign exchange inflows through home remittances ahead of Eid coupled with growing portfolio investment proceeds kept the rupee stable. During the week ending on October 5 it lost only three paisas against the dollar and closed at 60.73 per US unit.
Since the beginning of this fiscal year the rupee has, however, lost 0.4 per cent of its value against the greenback as foreign direct investment slowed down and the privatisation process came to a halt ahead of elections.
Bankers say though the central bank has made its interventions less frequent yet it continues to defend the rupee within a certain band. “The central bank keeps giving signals that it would not allow the rupee to touch the psychological low of 61 a dollar,” said a banker referring to the SBP interventions earlier this year when the rupee had fallen closer to 60.90 a dollar.
While the rupee looks healthy on the face of it, the fact that the external sector which continues to weaken, has the potential to push the local currency downwards. “We can avoid this only through additional borrowing from the international market during this fiscal year,” said an economist associated with a foreign bank.
The government however says, that a $16 billion plus foreign exchange reserve and a squeezing of the current account deficit indicate that the external sector worries are not well founded. (Data released recently by the Ministry of Finance show that the current account deficit narrowed to $1.4 billion in the first two months of this fiscal year from $2 billion a year ago).
The State Bank is yet to release the balance of payment data for this period. The central bank is also expected to release its annual report for the last fiscal year later this month.
Officials working on the annual report say that it contains some reality checks about the health of the external sector and also about fiscal management.
The Private Sector Credit Advisory Committee is also meeting sometime this month to approve the credit plan for the current fiscal year—interestingly after a lapse of about four months.
Bankers associated with credit disbursement say banks have tightened credit controls after witnessing a surge in bad loans and political uncertainty. As a result credit disbursement to the private sector is lower than what it was a year ago and banks are channeling the bulk of their liquidity towards risk-free government securities.
Between July 1-September 22, net advances of the banking industry declined by Rs56 billion whereas investment grew by Rs116 billion, according to the statistics released by the State Bank of Pakistan.
— Mohiuddin Aazim