December marked a pivotal moment for Pakistan’s equity market as it experienced a historic inflow of $65 million through the Special Convertible Rupee Account (SCRA), setting the stage for an all-time high.
The SCRA, designed as a financial mechanism allowing foreign investors to convert funds into Pakistani rupees for investments in the nation’s equity and debt markets, witnessed a substantial $64.9 million inflow under the equity category alone in December 2023.
The State Bank of Pakistan’s (SBP) data reveals a resurgence in investor confidence, with total SCRA inflows for the first half of the fiscal year reaching $222 million.
Digging into the details, the United States emerged as the primary contributor, injecting $127.2 million into the market. Other significant sources included the United Kingdom, Sweden, the United Arab Emirates, and various other nations.
The inflows, however, primarily focused on equity, with the UK being the exception, contributing $23.99 million for equity and $16 million for Treasury bills (T-bills).
While these inflows showcase a renewed foreign investor confidence, they fall short of pre-pandemic records for domestic bonds. Despite this, the current returns on domestic bonds, hovering around 21.5%, present an attractive option compared to dollar accounts.
Recent positive developments in Pakistan’s financial landscape, such as a stable rupee and increased SBP reserves reaching a six-month high of $8.2 billion, contribute to an optimistic outlook.
Notably, the sources of the $1.2 billion inflows that bolstered SBP reserves remain officially undisclosed, with market sources speculating involvement from international financial institutions like the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank. These factors collectively paint a picture of a growing and resilient financial market in Pakistan.
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