KARACHI: Pakistan has lost around $4 billion in portfolio investments over the past decade, data gathered by a market research firm shows, with analysts attributing it to persistent political and macroeconomic uncertainties that deterred foreign investors from an otherwise promising equity market.
The South Asian nation’s net foreign portfolio outflows exceeded the inflows by as much as 2,569 percent since 2014.
Foreign investors are estimated to have sold $3.5 billion of their net portfolios, compared with $130 million net inflows the country could attract in the past decade, according to data compiled by Karachi-based Topline Securities market research firm.
Other reasons that kept the foreigners jittery besides political and macroeconomic uncertainties included the departure of major funds like Vanguard from Pakistan’s market, the country’s downgrading by FTSE to a frontier market and profit-taking after the recent strong rally at Pakistan Stock Exchange (PSX), according to analysts.
“Politics and macroeconomic uncertainty both, plus global shift of capital away from emerging and frontier markets toward the US market predominantly,” Muhammad Saad Ali, head of research at Lucky Investments Limited, told Arab News, when asked what made foreigners sell their shareholdings.
A frontier market is categorized as one with lower market capitalization, higher political or economic instability, weaker regulatory systems and limited investor participation.
Prime Minister Shehbaz Sharif’s government has long been vying for political and economic stability in the debt-ridden country of 240 million people.
While some macroeconomic indicators have stabilized, political divide persists in the country, with jailed former PM Imran Khan campaigning against the government from behind the bars.
In 2023, Pakistan also established a one-window facility, called the Special Investment Facilitation Council (SIFC), to attract foreign investments, but the country has never been able to cross $3 billion mark in terms of annual foreign direct investment in about the last two decades, according to the central bank data.
Arab News reached out to Pakistan’s finance adviser Khurram Schehzad and SIFC Secretary Jamil Ahmad Qureshi for their views on this, but they were not immediately available for a comment.
Pakistan’s former finance adviser Khaqan Najeeb said the government will have to “do more” to attract foreign investors.
“Pakistan has restored a measure of macroeconomic stability, but global investors face higher-for-longer rates and constrained liquidity,” he said, adding the focus of foreign investors had shifted from policy continuity to whether Pakistan could deliver deeper structural reforms including regulatory coherence, institutional strengthening and market depth needed to anchor confidence.
Sharif’s government is trying to revive Pakistan’s economy with the help of International Monetary Fund’s $7 billion loan program which requires Islamabad to take reforms that would put the heavily indebted nation on the path of stability and sustainable growth.
“Recent foreign outflows from the PSX also reflect tactical profit-taking after a strong rally and fuller valuations,” Najeeb told Arab News.
Pakistan’s stocks have rallied to new highs in recent months and have surged more than 40 percent since January this year, according to PSX data.
“The task now is to turn stabilization into credible, sustained structural improvement,” Najeeb added.
