KARACHI: Foreign investment inflows into domestic bonds have remained zero in April so far despite over 13 per cent, risk-free returns.

Bankers said the country has been paying a high cost of political uncertainty for the last two months, which also noted massive outflows from Pakistan Investment Bonds (PIBs) and treasury bills.

The government earlier allowed foreigners to invest in domestic bonds to attract quick investment and attracted about $3.5 billion, but the emergence of Covid-19 in March 2020 evaporated almost all gains.

However, currently returns on treasury bills and PIBs have gone up to over 13 per cent, which can be highly attractive for investors. The cut-off yield on three-month treasury bills has jumped to 13.5pc while returns on six-month and 12-month tenors have reached 13.85pc.

“Foreign investment is generally considered highly sensitive as well as speculative. Political uncertainty resulting in a change of government in Pakistan kept the investors watching and avoiding investments,” said S.S. Iqbal, a senior banker.

The State Bank’s latest data shows there was no inflow of investment in treasury bills and PIBs while both noted an outflow of $14.15 m and $14.97m, respectively, as of April 21.

It also reflected in the foreign direct investment (FDI) inflows in March, as the month noted a net outflow $30.4m against an inflow of $173.4m during the same month last year. While inflows have been declining since the beginning of the year, March has proved to be one of the worst months.

Bankers said the situation would not change for investors until the newly formed government proves it has settled with complete command in Islamabad.

Besides, ongoing negotiations with the International Monetary Fund can also end government subsidies on oil prices and electricity, adding to political uncertainty.

Mr Iqbal said the fluid situation was reflected in the rising dollar value and a depressing equity market.

He said FDI outflow in March had hit the investment environment and overall inflows during the nine months through March fell by 2pc instead of registering growth.

Data shows total foreign investment inflows (including $376.7m into the equity market) during July-March were $672.9 million, while outflows (including $851.8m from the equity market) were $1.727bn. The cumulative net flow during the nine months stands $1.054bn in deficit.

No inflows of foreign investment in domestic bonds and a net outflow of FDI have also negatively impacted the exchange rate, as the rupee has no support to stand firm against a bullish dollar.

Published in Dawn, April 23rd, 2022