Investment in NPCs declines to $763 million

In the wake of growing political uncertainty and worsening economic fundamentals in the country, overseas Pakistanis have aggressively started pulling out investments from the Naya Pakistan saving certificates through their Roshan Digital Accounts (RDAs).

According to the central bank’s latest report on Pakistan’s External Debt and Liabilities (Outstanding), the ‘net’ investment in Naya Pakistan Certificates (NPCs) declined to $763 million on September 30, 2022.

Earlier, the bank had reported ‘gross’ inflows from overseas Pakistanis via RDAs rising to $5.3 billion in October 2022, with a major portion of it being invested in NPCs at $3.3 billion in gross till the aforementioned month.

According to the latest data, the net investment in the certificates hit a record high of $1.42 billion in March 2022. By June 30, 2022, however, it dropped to $953 million and plummeted even further to $763 million by September 30, 2022.

An expert recalled that RDAs were the brainchild of former prime minister Imran Khan, while the former governor of the State Bank of Pakistan (SBP) Reza Baqir had marketed them aggressively around the world to improve the country’s international payment capacity. RDAs were introduced in September, 2020.

Speaking to the Express Tribune on the condition of anonymity, the expert noted, “The present Pakistan Muslim League-Nawaz (PML-N) coalition government is not taking ownership of the scheme, nor is it showing concern about the falling investment in the certificates. Instead, however, the government is preoccupied with political point-scoring.”

He stated that the “net investment in NPCs hit a record high of $1.42 billion in March 2022. This was the time before the Pakistan Tehreek-e-Insaaf (PTI) government was ousted through the vote of no-confidence on April 10, 2022.”

The previous government had attracted investment in the NPCs by offering comparatively higher rates of return in the range of 4.75% to a maximum return of 7%. The rate of return varied depending on the foreign currency in which the investment was made and the length of the period of investment. The central bank allowed investments in only three foreign currencies; the US dollar, the British pound and the Euro for a minimum period of three months to a maximum period of five years.

“At that time, the rate of return on such investments in developed countries stood at around 1%. Now, developed countries have increased the rate of return after benchmark interest rates were hiked. For example, the US raised its rate to 3.75-4%, as compared to 0-0.25% during the Covid-19 pandemic,” explained the expert.

“The present government, however, has not increased the rate of return on the NPCs. Accordingly, overseas Pakistanis are relocating their investment to more lucrative products. The yield (rate of return), for example, on Pakistan’s own global five-year Eurobond is hovering around 25% at present,” he said.

The expert questioned why any overseas Pakistani would invest in the NPCs when other instruments are offering a much higher rate of return.

“Financial experts have been suggesting the government increase the rate of return on the foreign currency-denominated NPCs to convince non-resident Pakistanis to retain their investment in the scheme. The government, however, has its own plans,” he said.

The PTI government also attracted foreign investment worth over $3.5 billion in 2019 by offering a higher rate of return on investment in the rupee-denominated government debt securities including T-bills and Pakistan Investment Bonds (PIBs), he recalled.

The continuous depletion in the country’s foreign exchange reserves could be another plausible reason for non-resident Pakistanis to pull out their investment.

At present, the country’s foreign exchange reserves have depleted to $8 billion compared to over $20 billion in August 2021.

Published in The Express Tribune, November 19^th, 2022.

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