Hot money outflows accelerate in March

Updated April 02, 2020

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Experts in the financial circles believe the inflows could have increased further had the coronavirus not appeared. — Reuters/File
Experts in the financial circles believe the inflows could have increased further had the coronavirus not appeared. — Reuters/File

KARACHI: Outflow of foreign investment during the current fiscal year crossed $2 billion as foreign investors pulled out nearly 60 per cent of their funds from the treasury bills, reported the State Bank of Pakistan (SBP) on Wednesday.

Over $1.9bn of foreign investment in the domestic bonds and equity flew out within a month.

Foreign investments in T-bills witnessed a massive jump during the current fiscal reaching as high as $3.4bn. Experts in the financial circles believe the inflows could have increased further had the coronavirus not appeared.

Out of total $3.4bn investment in T-bills, about $1.74bn alone were withdrawn in March.

Bankers said that foregin investors did not even wait for the maturity of their short-term investment in three-month T-bills as they dumped their holdings in the riskier markets amid coronavirus scare.

While a number of economists were against the idea of foreign investments in the domestic papers, the government had supported the move. The critics were of the opinion that these investments could fly back in case of an unexpected situation.

However, bankers said since the investment in the T-bills was in the initial stages and the amount invested was not so big, the damage could be controlled.

The data showed inflows during the first nine months of current fiscal year were $4.134bn including $3.431bn in T-bills while the outflow during the same period was $2.921bn including $2.057bn from T-bills — rest of the outflows were from stock market. In percentage terms, around 60pc of the total investments in the T-bills have been offloaded by investors during the last two months.

Outflow from equity was greater than inflows during the current fiscal year. As per the SBP data, outflow of investment from the equity market during the first nine months of the current fiscal year was $818 million against inflows of $624m.

Some experts claim the sudden outflows were not instigated by the pandemic but real reason was the SBP’s decision to cut interest rate by 2.25 per cent in March which created uncertainty among investors.

They believe the central bank may opt for further rate cuts to support economic shocks from coronavirus which has crippled the trade and industry.

The SBP has already unveiled a series of measures to contain the damage caused by coronavirus.

In the previous T-bill auction, the government borrowed Rs552bn while the cut-off yields on all three tenors were slashed. The auction also showed the banking sector’s willingness to invest in T-bills as they offered Rs1.3 trillion during the auction showing their reluctance to extend loans to the private sector in these troubled times.

Published in Dawn, April 2nd, 2020