Banking facilities for non-resident Pakistanis: An economic panacea?
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Despite registering a 9% month-on-month decrease in January, the cumulative inflows under Roshan Digital Account (RDA) touched $3.38 billion. This amount is encouraging given the limited time period of 17 months in which these receipts have arrived. It is now interesting to note which segments of the economy hold greater promise for those sending money from abroad.
For example, it is clear that Naya Pakistan Certificates (NPCs) with their lucrative returns have been a great success. Almost 69% of the inflows were invested in NPCs. Equally important is to notice that the Islamic segment of certificates gaining traction despite the preconceived notion that Islamic NPCs will not be able to attract much interest. Almost $1.04 billion went into Islamic NPCs (which do not even guarantee a fixed return). The Pakistan Stock Exchange despite all the outreach efforts could only attract $34 million – a dismally low number which also demonstrates the weak confidence of the diaspora in our stock market.
Apart from facilitation in investment, the RDA has allowed non-resident Pakistanis (NRPs) to open bank accounts, conduct usual banking operations, and make local payments. The banking sector gained in terms of increased number of account openings. Close to 350,000 accounts have been opened from more than 170 countries. On average, the growth in the number of accounts opened remained close to 6 percent during the past 17 months.
There has been some criticism that blue-collar Pakistani workers still find it hard to open and manage RDAs. In this regard, the State Bank of Pakistan (SBP) and commercial banks both have to play a role in improving the communication and outreach approaches. Perhaps allowing online demos to function through vernacular languages could be a good idea.
An evaluation is also required if there are inflows that may have gone in agriculture and industrial production sectors. Ultimate success of foreign capital will be if it is directed towards increasing productive capacities and jobs are created. In the absence of this outcome, several risks emerge.
Apart from facilitation in investment, the RDA has allowed non-resident Pakistanis to open bank accounts, conduct usual banking operations, and make local payments.
Dr. Vaqar Ahmed
To start with, what happens if due to external shocks or internal fiscal pressures, the exchequer cannot maintain the lucrative dollar returns on NPC? Could it result in more than anticipated outflow of forex? This issue has already been discussed in the parliament where honorable members were keen to know if these inflows are akin to a ‘hot money’ phenomenon.
Besides, even in the absence of any economic shocks, there has to be some planning with regards to how long these dollar returns have to be sustained. It was in the background of COVID-19 that RDA became a panacea. But longer term reliance on this quick fix could lead to what economists call the ‘Dutch Disease’ where exchange rate remains at a favorable level owing to debt, aid, and remittances related inflows rather than non-debt inflows. This has adverse implications for the manufacturing sector and exports.
Another important evaluation may be undertaken to study how the RDA schemes initiated during pandemic times in the peer economies performed. For example in India, Non-Resident Indians (NRI) accounts have also seen growth. Among the sectors which benefited was the life insurance sector and mutual funds market. In the corporate segment, many of these accounts were set up by startup firms with owners abroad. The IT and ICT sector in particular is an example which was able to witness this growth. There are numerous examples of NRI funded EdTech initiatives which have only become a reality in India during the lockdowns.
It is heartening to note that there are other products made available through RDA including Roshan Apni Car, Roshan Samaaji Khidmat, and Roshan Apna Ghar. Is it still too early to say if the uptake of these products has been a success? Yes, but continuous innovation informed by evidence on early successes could lead to attracting better quality foreign capital.
— Dr. Vaqar Ahmed is an economist and former civil servant.
He tweets @vaqarahmed
