Political uncertainty rattles economy: Country witnesses $1.5bn capital outflow during ongoing fiscal year

LAHORE: The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel (BMP) has said political uncertainty has rattled the Pakistan’s economy, hitting the stock market constantly, as the country has witnessed the capital outflow of around $ 1.5 billion during the ongoing fiscal year, with major foreign investment outflows from Pakistan Investment Bonds (PIBs) despite high-yield returns on them.

The BMP chairman and FPCCI former president Mian Anjum Nisar observed that the uncertainty at the political front and parliament moving closer to the vote of no-confidence motion dented investors’ confidence, resulting into the investment outflow of at least $400 million from the country just in a single month of March.

He said that country-to-country inflows reflect the changing situation on external fronts of the economy, as the FDI inflows from China has dropped to $ 384 million during Jul-Feb FY 22 compared to $ 522 million in 8MFY21. In spite of good relations with China, Pakistan is unable to attract Chinese investors for any vital change in the economy. China is the biggest trade partner of the country but the balance is largely in favour of China.

Quoting the figures of the central bank, he said that foreign direct investment (FDI) fell by 33 percent in Feb 2022 compared to preceding month of Jan, as the second half of the current fiscal has been facing several negative impacts including political instability, the war in Ukraine and a hike in oil prices in the international markets. The record increase in oil prices as well as in other commodities rates has widened the trade deficit. Though the country reported a positive growth of FDI inflows by six percent during July-Feb 2021-22 (8MFY22) but this growth is far lower than the $ 11.6 billion current account deficit confronting the country.

Anjum Nisar said that the returns on the treasury bills and PIBs are highly attractive for foreign investors, as such high rates on government-guaranteed risk-free bonds are unprecedented but unfortunately the outflows from PIBs reached $ 353 million in March. In the same way, the yields on the treasury bills rose to 11.99 percent for three-month papers, 12.5 percent for six months, and 12.7 percent for 12 months.

During the ongoing fiscal year, the total outflows from equity, PIBs, and treasury bills stand at $ 1.558 billion against total inflows of $ 654.3 million. The cumulative net flow during the nine months through March 2022 comes in at $ 904.36 million.

The single-day outflow on 24th March was $ 91.3 million against an inflow of $ 2.3 million in equity. The outflows from the PIBs and treasury bills were $ 50 million and $ 34.8 million, respectively, during the same day, the report showed.

During the current fiscal year, the total PIB inflows stood at $ 104.3 million so far, and inflows have remained at just $ 0.15 million during this month.

The total inflows of the PIBs and treasury bills during March stand at $ 0.15 million, while outflows of the two domestic bonds are $ 352 million. If the outflows from equity are counted, the total outflows of foreign investment were $ 402.35 million, while the cumulative net flow was $ 378.3 million. The inflows in equity during March stand at $ 23.9 million.

Poor investment climate hit the FDI inflows which noted a sharp decline of 50 pc to $ 110 million in January this year from $ 218.7 million in December 2021.

Real change was noted in January since the first half of the current fiscal year (1H FY22) witnessed a growth of 20 percent in FDI. The inflow in December 2021 was much higher at $ 218.7 million – showing a jump of 29 percent – compared to $ 169.4 million in December 2020.

The declining trend of last two months could eliminate the positive growth trend of 20 percent growth during 1H FY22.

Though exports showed growth of 25 percent but the amount is still not enough to mitigate the impact of the huge import bill. The only positive news was the inflow of remittances which kept its pace of growth during 8MFY22.

The SBP data showed FDI inflow in February this year was $ 90.8 million compared to $ 137 million during the same month in FY21; a decline of 33.6 percent.

Portfolio investment during July-Feb FY22 showed that the outflow was higher at $ 314 million compared to an outflow of $ 253 million in 8MFY21.

Copyright Business Recorder, 2022