RDA inflows reach close to $5b

Investments in Roshan Digital Accounts will accelerate once challenges are tackled

ISLAMABAD:

The inflow of investment in Roshan Digital Accounts (RDA) hit the $5 billion mark in August 2022, helping stabilise Pakistan’s foreign currency reserves and shielding the rupee in foreign exchange markets.

Overseas Pakistanis sent $187 million through the RDA in August 2022, taking total gross inflows to $4.98 billion in two years since launch of the investment scheme in September 2020, reported Arif Habib Limited citing central bank’s data on Tuesday.

A majority of non-resident Pakistanis are investing in the lucrative Naya Pakistan Saving Certificates through the RDA.

However, month-wise data showed that inflows through the online accounts slowed down to an 18-month low at $187 million in August, the brokerage house said.

RDA investments, however, stood stable when compared with inflows of $188 million in the prior month of July 2022.

“RDA inflows have slowed down due to a reduction in disposable income of Pakistani expatriates amid high inflation and fears of recession in the West,” pointed out KASB Securities Head of Research Yousuf Rahman while talking to The Express Tribune.

The US was experiencing a multi-decade high inflation while Europe was facing recession, he said.

Besides, growing uncertainty on economic and political fronts in Pakistan may also have forced some expatriates to put on hold new portfolio investment and spending back home, he said.

He, however, hoped that RDA inflows would accelerate again once the global and domestic challenges were tackled.

“Pakistan should attract another $2.5 billion through the RDA in next 12 months,” said Rahman. “Inflows should surge to $3.5 billion in the fourth year since RDA’s launch as global and domestic issues are expected to vanish.”

The government should consider revising up the rate of return on Naya Pakistan Saving Certificates for overseas Pakistanis to accelerate the investment. Hike in interest rates by major global economies like the US and UK may turn the saving certificates less attractive.

The certificates offer a return of 4.75% to 7% per annum depending on the period of investment – from three months to five years – and the currency (dollar, euro or pound sterling) in which the investment is made.

The return on rupee-denominated certificates varies from 9.50% to 11%, depending on the duration of investment.

Pakistan’s current account deficit would have worsened with a steeper rupee depreciation had RDA investments not arrived.

The country recorded the second highest current account deficit of $17.4 billion in the previous fiscal year ended June 30, 2022. The rupee depreciated a massive 30% to Rs205 against the US dollar in the year.

Rupee weakens

Pakistani currency maintained its downturn for the third consecutive working day on Tuesday, losing another 0.70% (or Rs1.56) to Rs221.42 against the dollar in inter-bank market amid widespread flood devastation.

The rupee had closed at Rs219.86 on Monday, according to the central bank. It has cumulatively dropped 1.29% (or Rs2.82) in the past three days.

Exchange Companies Association of Pakistan (ECAP) President Malik Bostan said the floods had washed away parts of the (agricultural) economy. Crop losses have forced the government to liberalise food imports in order to ensure food security.

“Additional imports have increased the demand for dollar in the forex market that caused fresh depreciation of the rupee,” he said.

Besides, he said, the dollar was strengthening against global currencies as well and Pakistani rupee was no exception, as the US central bank hinted at continuing to tighten its monetary policy.

“Import of tomato from Iran and resumption of Umrah pilgrimage have also created additional demand for foreign currency, which is impacted the rupee value.”

Published in The Express Tribune, September 7^th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.