December 15, 2020 (MLN): If you keep repeating the same thing over and over again, it eventually becomes true. Well, at least in your own imagination. This is quite applicable to Pakistan’s economy, where the PTI government has actively been bragging about its performance, reiterating the same five or so measures in every press conference/meeting. It has been smart about not squandering any chance to claim credit where positive numbers have been reported, linking it to how the country’s stabilization is bearing fruits and things are getting back to normal now.
Joining this PR campaign, in what can have potentially dangerous consequences in the long term, is the IMF returnee governor becoming the poster boy for the reforms taken over the last two years almost. This effort has involved telling the Pakistani story – one of turnaround, resilience, and proactive policymakers – at every local or international forum.
Through cherry-picked numbers, we have been told time and again how the recovery is back, with remittances and current account surplus becoming the core highlights of the usual pitch. But nothing probably achieves this objective than the changing fortunes of the equity market, which has added 6,647 points in 5MFY21 and even became the best performer in the region for a month.
Major brokerages have already projected the crossing of 50,000 points over the coming year and there is a flurry of new listings after a long hiatus. Bloomberg reported in October that around 10 new companies will go public in FY21, and Planning Minister Asad Umar was quick to pick this item. But in this excitement of what’s still to come that we have almost lost sight of all that’s actually happening.
Disclaimer: it’s not a really pretty picture. Sparing the first two months of 2020 when the hot money was still pouring into the debt markets due to the extremely high policy rate, Pakistan has consistently seen a cumulative foreign outflow – clocking in at $1.61 billion in 11MCY20, as per the State Bank’s SCRA data.
Much of that can obviously be attributed to the exodus of foreigners from the treasury bills worth $1.15bn as of Nov 30. Admittedly, the problem hasn’t been exclusive to Pakistan as after the coronavirus outbreak, there was a record capital flight from the emerging markets. However, things have been changing of late and inflows have started pouring in elsewhere from June onwards.
The WSJ recently cited a Capital Economics report that net portfolio inflows into emerging markets reached their highest levels since 2014, based on short-term data drawn from a subset of countries. In Pakistan, however, there has been no reprieve with foreigners exiting on a net basis in eight of the nine months since February. Of course, the slash in policy rates was going to impact the foreign flows but let’s be honest, it’s still not a low-interest environment in nominal terms.
Equity outflow from the country hasn’t been insignificant either as foreigners have offloaded over $593 million in 2020 as of November. In fact, their net position was negative in every single month of the year, even when the local economy was apparently very close to recovery. Sector-wise data reveals the same story where cement has seen $105.6 million flow out despite the government’s blessings on the construction industry. A similar situation prevails in commercial banking and oil and gas exploration, where $138.4m and $108.8m have been taken out.
Pakistan Investment Bonds have been the only respite in this period, recording a net inflow of $120.3m but the overall value pales in comparison to short-term debt instruments as well as equity.
The story doesn’t change much even if we alter the period, as 5MFY21 cumulative net outflow has been recorded at $476.6m, led by T-Bills which were offloaded to the tune of $304.5m and followed by equity worth $215.6m. PIBs again proved more attractive, raking in a total of $43.5m during these five months.
Based on these data, the government’s narrative doesn’t exactly hold. At least beyond the current account or remittance numbers, and we haven’t even turned to the stellar performance on the pricing front which has greatly burdened every citizen.
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