“July Sees Decline in Deposits as Rupee Faces Pressure from Delayed IMF Approval”
Overseas Pakistani Deposits Drop to $161 Million in July Amidst Rupee Pressure from IMF Delay
KARACHI — In July 2024, overseas Pakistanis deposited and invested $161 million through the Roshan Digital Account (RDA), marking a decline compared to the previous six-month average. This decrease has contributed to a Rs0.18 per dollar drop in the domestic currency in the inter-bank market.
According to data from the State Bank of Pakistan (SBP), the total inflows through the RDA since its introduction in September 2020 have reached $8.42 billion. However, net inflows, which account for funds that were sent to and later withdrawn from Pakistan, currently stand at $1.46 billion.
Decline in July Deposits
Topline Research highlighted that July’s RDA inflows of $161 million were below the six-month average of $168 million and the overall average of $179 million since the RDA’s launch. Additionally, net inflows for July amounted to $147 million, falling short of both the six-month average of $168 million and the 47-month average of $144 million.
The SBP data indicates that while non-residents have injected $5.33 billion into the local economy and withdrawn $1.62 billion, the total outflows from the RDA have reached $6.96 billion out of the $8.42 billion in gross inflows. Of the remaining net repatriable funds of $1.46 billion, overseas Pakistanis have invested $357 million in Naya Pakistan Certificates (NPCs), $618 million in Shariah-compliant NPCs, and $39 million in the Pakistan Stock Exchange. They also hold a balance of $411 million in online accounts at Pakistani banks, with other liabilities amounting to $32 million.
Factors Contributing to the Decline
The SBP has not provided a specific reason for the drop in RDA inflows. However, analysts point to political instability and reports of a potential delay in the International Monetary Fund (IMF) Executive Board’s approval of a $7 billion bailout package as possible contributing factors. The IMF’s delay in approving the bailout package, now expected to be reviewed in September 2024, could be impacting investor confidence and financial inflows.
These factors, combined with the decrease in RDA inflows, have put pressure on the Pakistani rupee. Financial experts have warned that any delay in the new IMF loan program could adversely affect the rupee’s stability. The IMF Board is awaiting the rollover of $12 billion in deposits at the SBP from friendly countries, including Saudi Arabia and China, which is crucial for the approval of the bailout package.
Impact on the Pakistani Rupee
The Exchange Companies Association of Pakistan (ECAP) reported that the local currency appreciated by Rs0.20 in the open market, closing at Rs280 per dollar. Despite this short-term appreciation, the broader trend indicates ongoing pressure on the rupee due to the uncertainties surrounding the IMF program and the reduced RDA inflows.
Future Outlook
The drop in RDA inflows and the potential delay in the IMF bailout package reflect broader economic challenges facing Pakistan. The reduction in deposits highlights the need for improved economic stability and investor confidence. As Pakistan navigates these challenges, the impact on the rupee and the broader financial landscape will be closely monitored by both domestic and international observers.
The situation underscores the importance of timely financial support and stable economic policies to maintain investor confidence and currency stability. The anticipated IMF approval and the resolution of political uncertainties will be critical in shaping Pakistan’s economic outlook and financial stability in the coming months.
In summary, while overseas Pakistani deposits through the RDA saw a notable decline in July, contributing to pressure on the rupee, ongoing developments related to the IMF bailout package and domestic political stability will play a crucial role in determining future financial trends.