RDA: opportunity and risk

Islamabad’s ever-increasing dependence on overseas Pakistanis to keep the country afloat was illustrated by the increasing investment coming through Roshan Digital Accounts (RDA). The PTI government initiative has seen $2.9 billion invested in different assets since it was launched about 14 months back. Analysts believe this amount will rise to around $5 billion by the end of the current fiscal year in June 2022.

Apart from helping stem the pace of the falling rupee value, these funds have provided a valuable foreign exchange cushion that also softened the blow of about $3.5 billion in foreign exchange outflows from government securities amid the global economic turmoil caused by Covid-19. RDAs also have tremendous growth potential — only about 300,000 of the roughly 11 million overseas Pakistanis have availed the facility so far. Given the additional banking benefits for lower-income remittance senders, it is very likely that the number of account holders will rise sharply in the coming years.

However, there is also cause for caution, as money invested through RDAs may well be just that — an investment. Unlike remittances, which are intended to be spent in Pakistan by the relatives receiving the money, many people opening RDAs may only be looking for healthy returns offered by the various financial products and may pull the money, plus any gains, at any time. This makes them a more speculative source of foreign currency for the government. However, most of the securities invested in through RDAs are less likely to be liquidated on short notice due to relatively high returns — over 10 times the returns offered by several international securities. Unfortunately, those returns have to be paid out from somewhere, and with revenue growth nowhere near the same levels, paying them will continue adding to the country’s debt burden.

Incidentally, remittances are predicted to break last year’s all-time record of $29.4 billion, with independent analysts saying they expect the figure for the current fiscal year to be just under $32 billion. While politicians from all parties praise overseas Pakistanis for helping the economy by sending this money back, the fact that remittances, rather than exports, remain Pakistan’s top forex earner is even more concerning.

Published in The Express Tribune, January 03, 2022.

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