July sees zero foreign inflow into investment bonds

Published August 1, 2021
A dealer counts US dollars at a currency exchange shop in Karachi. — AFP/File
A dealer counts US dollars at a currency exchange shop in Karachi. — AFP/File

KARACHI: The first month of the 2021-22 financial year passed without any foreign inflow in the Pakistan Investment Bonds (PIBs) which attracted $256 million during the outgoing fiscal year.

The data released by the State Bank of Pakistan on Friday showed a sudden stop to foreign inflows for PIBs in July against a net inflow of $22m in June.

With the emergence of Covid-19 in March last year, the country witnessed net outflow of foreign investment in domestic bonds and equity market but the inflow started from September 2020, particularly in the PIBs.

The PIBs still offer highest returns ranging from 8.69 per cent for three years, 9.198pc for five years and about 10pc for 10 years. Market experts believe that the offer is very attractive for PIBs but the changing situation in Afghanistan has caused uncertainty for the investors.

“The quick and sudden return of the US forces from Afghanistan and war in most of the country has created fear among the foreign investors as well as Pakistanis about the possible negative impact,” said a senior banker.

Bankers and analysts believe that the PIBs offered much higher return compared to emerging as well developed economies but it appeared that the fear about the uncertain situation in Afghanistan and the fourth wave of Covid-19 in Pakistan were discouraging foreign investors.

The data shows that during July the outflow of investment from PIBs was $8.3 million; mostly from the United Kingdom and the rest of it from Luxemburg. Outflow to the UK was 6.76m and $1.5m to Luxemburg.

However, the changing trend for the investment in treasury bills continued during July as there was little gap between inflows and outflows. In June the trend changed for the first time in FY21 as the inflow in treasury bills was higher than the outflow.

The inflow during June was $163.4m while the outflow was $150.8m; in July the inflow was $63.5m and outflow was $68.6m.

The biggest difference was noted in the inflow and outflow in the equity market. The inflow during July FY22 was $26.7m while the outflow was $49.2m.

The foreign investments in PIBs were not diversified instead, it was limited to a few countries. The highest inflow in PIBs was from the United States as it reached $118.5m in FY21. The inflows from Luxemburg were second highest with $115.3m.

Pakistan’s another project to gather the US dollars was the Roshan Digital Account which was launched in second quarter of the previous financial year. The State Bank’s governor recently said the inflow through RDA reached $1.8bn.

Bankers believe that the inflow in the treasury bills could once again turn into hot money as the trend shows; the amount of inflows in the last quarter of the FY21 had increased significantly.

Published in Dawn, August 1st, 2021

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