Foreign inflows in domestic bonds rise

Published May 2, 2021
Foreign inflows have increased in domestic bonds, with both the treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) collectively attracting $770 million during 2020-21. — Dawn/File
Foreign inflows have increased in domestic bonds, with both the treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) collectively attracting $770 million during 2020-21. — Dawn/File

KARACHI: With the improvement in the external account of the country, foreign inflows have also increased in domestic bonds, with both the treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) collectively attracting $770 million during 2020-21.

However, the outflow of foreign investment from T-bills is higher than the inflow, reflecting that investors are making money by investing in short-term domestic bonds.

Till March 2020, foreign investment in T-bills reached the peak of $3.43 billion providing a continuous source of foreign exchange to the country, but the emergence of Covid-19 pandemic changed the situation and most of the hot money left the country.

The State Bank’s latest data issued on April 30, showed that inflow in T-bills during the current fiscal year to date was $529m reflecting the growing confidence on domestic bonds. However, the outflow during the same period was $789.3m.

Bankers said higher outflow indicates the maturity of previous investment in T-bills. Investors bought all three T-bill tenors (three-, six- and 12-month), though major investment in these papers flew back as the pandemic made its way but not all the investments. Financial experts believe that the situation could improve once the third wave of the Covid-19 pandemic is over.

Foreign investment in the long-term PIBs are much better as outflow from this sector was not significant. Since July 2020, the PIBs attracted $245.64m while the outflow was $21.6m. This was also due to disinvestment by UK. The inflow from UK was $10m while the outflow was $9.5m during the current fiscal year.

The investment in PIBs started coming back since November 2020 and till end March this year it reached $240m showing a good progress. However, April noted a slow growth as only $4.95m was invested by the foreign investors. Apparently there is no reason for slowdown of investment in PIBs but some bankers believe it could be the resurgence of coronavirus which shattered the State Bank’s earlier scheme to attract foreign investment through domestic bonds.

Experts earlier said the PIBs offer such a high rate of return that investors could not resist. No bank or bonds anywhere in the international market offer such returns, they added. The 10-year benchmark PIBs offer about 11 per cent return which is much higher than the USA, UK, and other developed economies.

The US Fed Reserves interest rate is in the range from zero to 0.25pc. Highest investment in PIBs are coming from the US. The data shows that $115.23m were invested by investors from the US during FY21.

The second highest investment of $97m came from Luxemburg. All most all European economies are facing the same situation of very low interest rate. Having huge liquidity, the investors are investing in high-risk equity markets like Pakistan. During the ongoing FY21, foreign investor invested 526m but the outflow from equity market remained higher as it was $893m.

Except foreign direct investment (FDI) which fell by 35pc to $1.4bn during July-March FY21, all most all sources of foreign inflows have shown improvement.

Published in Dawn, May 2nd, 2021

Opinion

Activism in verse
07 May 2021

Activism in verse

Poetry speaks louder than prose when it comes to making an impact.
Missing women
07 May 2021

Missing women

In terms of gender parity, we are among the worst.
Mixed signals on rights
Updated 06 May 2021

Mixed signals on rights

Government officials continue to call human rights standards alien to Pakistan’s ground realities.

Editorial

Reprimanding envoys
Updated 07 May 2021

Reprimanding envoys

The prime minister should have engaged with honest and respectable officers to identify how solutions can be found.
07 May 2021

Foreign funding case

THE foreign funding case against the PTI has become a never-ending tale. It has been dragging on for years and after...
07 May 2021

Water woes

IRRIGATION experts have voiced concern over the decline of freshwater flow through Kotri barrage, which has led to...
Proceed with caution
Updated 06 May 2021

Proceed with caution

The slightest loosening of SOP protocols could send us hurling in the direction where India finds itself today.
06 May 2021

IPP dues

THE ECC decision to pay the first tranche of outstanding dues of one set of IPPs, and further delay the payments of...
06 May 2021

Violence against doctors

HEALTHCARE workers and doctors’ associations in two major hospitals of KP are adamant that the KP Healthcare...