Foreign inflows in T-bills rise

Updated 18 Nov 2020

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Net foreign investment in the treasury bills as of Nov 16 amounted to $16 million reflective of growing confidence in government-backed securities. — AFP/File
Net foreign investment in the treasury bills as of Nov 16 amounted to $16 million reflective of growing confidence in government-backed securities. — AFP/File

KARACHI: Net foreign investment in the treasury bills as of Nov 16 amounted to $16 million reflective of growing confidence in government-backed securities, latest data released by the State Bank of Pakistan (SBP) showed on Tuesday.

In the FY20, the government and SBP had promoted T-bills to attract foreign investment. However, investors were allowed to take out the entire amount from the T-bills without any objection from the central bank.

Owing to lucrative rates and carry-trade opportunities, foreign investment in the T-bills during the 9MFY20 rose to $3.4 billion. However, foreign investors pulled out their investment in T-bills owing to the uncertainty caused by the Covid-19 pandemic in March earlier this year.

However, November witnessed a change in investment pattern as the inflows are so far higher than the outflows. According to the latest data issued by the SBP on Tuesday, total inflows in November (up to Nov 16) was $44.14m while the outflow was $28m; net inflow was $16m.

Financial sector experts believe the foreign investment in T-bills is a sign of returning confidence due to an improvement in major economic indicators of the country. While the current account is so far in surplus during the current financial year, the large scale manufacturing (LSM) posted over 7.6 per cent growth in September. During July-Sept, the LSM grew by 4.81pc compared to last fiscal year.

In 2019-20, the LSM growth fell by 10.17pc on a yearly basis.

The inflow of foreign investment in T-bills, also referred to as hot money, continued during the current fiscal year but the outflow was so far higher. The cumulative inflows during FY21 (July-Nov 16) were $171m against outflows of $463.7m.

A banker said that net inflows in November could be a sign of an increase in foreign investment, beginning the second phase of hot money inflows.

He said that higher outflow during the current fiscal year was also indicating that the remaining hot money investment has matured. Though, most of the investments left Pakistan in the wake of pandemic, hundreds of millions were still parked in the government securities. Bankers found it encouraging that the investment in T-bills continued during the current fiscal year.

It was also noted that some experts believed the sudden outflows in FY20 were not instigated by the pandemic but real reason was the SBP’s decision to cut interest rate by 2.25pc in March and then it was brought down to 7pc from 13.25pc. They said it created more uncertainty than the pandemic.

Published in Dawn, November 18th, 2020