Foreign currency inflows sent home by overseas Pakistanis through their Roshan Digital Accounts (RDAs) have continued to dive for the fourth consecutive month, hitting a 23-month low at $146 million in October 2022.

Gross inflows through RDAs have amounted to $5.3 billion in the past 28 months.

Of the gross $5.3 billion receipts, a large chunk of the amount, around $3.4 billion was invested in Naya Pakistan saving certificates which were specially designed for non-resident Pakistanis with the added incentive of lucrative returns.

Experts noted that a significant slowdown in receipts through RDAs is partly due to the unattractive rate of return being offered on the saving certificates. This sluggishness was further aggravated following developed countries increasing profit margins on their global bonds and fixed investment products in recent months; the US and UK central banks hiked benchmark interest rates notably, thus increasing the rate of return for investors.

Speaking to the Express Tribune, Head of Research at Ismail Iqbal Securities (IIS), Fahad Rauf said that “SBP is required to raise the returns on foreign currencies-denominated Naya Pakistan Certificates (NPCs), if this funding source has to be exploited.”

“When NPC rates were initially decided, the spread of one-year NPC over one-year US treasury and one-year LIBOR was around 6%. Now, it stands at less than 2%,” he added.

“The central bank offers a profit in the range of 5.50-7% on US dollar-denominated NPCs, 5.25-6.50% on pound-based NPCs and offers a rate of return in the range of 4.75-5.75% on euro-denominated NPCs, depending upon the duration of investment from three-months to five-years,” Rauf explained. “The government has increased its profit margins on rupee denominated NPCs up to 15.25% in September 2022, depending upon the investment period ranging from three months to five years. Earlier, the rate stood in the range of 9.50-11%,” he noted.

“The RDA inflows have helped stabilise the country’s foreign currency reserves and have also supported the rupee against the US dollar in the interbank market. The reserves would have fallen to below the two-week import threshold to around $3 billion in the previous couple of months, if the inflows had not been realised,” emphasised Rauf.

“A deteriorating investment climate taking over the country has also prompted overseas Pakistanis to slow down investment via RDAs. The investment climate has become volatile amid growing concerns over Pakistan defaulting on international payments, higher yields on Pakistan’s US dollar-denominated bonds in world markets and the devastating floods,” observed Rauf.

The Pakistani currency maintained an uptick on the second consecutive working day, as it improved by 0.12% (or Rs0.26) to close at Rs221.66 against the US dollar in the interbank market on Monday. The currency has cumulatively risen by Rs0.29 in the past two days.

The latest uptick was recorded following the finance minister’s announcement that the county is expected to receive $13 billion from friendly countries.

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