Foreigners sold shares worth $420 million during July to December 2018, according to the data released by the State Bank of Pakistan on Wednesday.
As foreigners were taking their dollars out of the country’s capital market, the benchmark KSE-100 index was on a decline and lost 5% of its value in the period under review.
The overall picture is no good as foreign investment in the country has declined by 77% to $900 million in the last six months over the comparable period of the previous year. In December-July 2017, Pakistan received $4 billion in foreign investment.
The dollar drain from the capital market and declining foreign investment coupled with little to no growth in exports has put the country’s foreign exchange reserves under pressure.
For every dollar that makes its way to the country, two leave it resulting in our dollar reserves to deplete. Currently, Pakistan has only $7 billion left in its kitty, which is not enough to sustain even two months of imports, let alone repayment of foreign loans.
The PTI government has been trying to get help from friendly countries and is also negotiating with the International Monetary Fund to shore up its foreign reserves.
So far, the government has secured an aid package from Saudi Arabia, which pledged $3 billion in cash and another $3 billion in oil credit while UAE has also pledged $3 billion to support our foreign-exchange reserves.
According to a report by Moody’s investors service, Pakistan has 60% fewer dollars than it needs to meet its external financing need for 2019. If we don’t increase our dollar reserves, the rupee will remain under pressure and may depreciate even further, which may lead to higher inflation.
Last year, the dollar rose 27% against the rupee and was trading at Rs139 at the end of the year.