KARACHI: The high returns on treasury bills and Pakistan Investment Bonds (PIBs) failed to attract a single dollar from foreign investors in the second month of the current fiscal year.

The data released by the State Bank of Pakistan on Monday showed zero inflow of foreign investment in T-bills and PIBs during August, while an investment of just $3 million was recorded in July against an outflow of $31.085m in the first month of FY23.

The high-yield domestic bonds are only making government borrowing costlier. A return of 15.79pc for 3-month T-bills, 17.85pc for 6-month and 19.94pc for 12-month is a good chance for financial institutions to make large profits but the government will have to pay a heavy cost as the share of debt servicing would eat up the major share of budget.

The data showed neither the T-bills nor PIBs could attract foreign investments while the outflow from T-bills in August was $0.924m.

In June, the last month of FY22, attracted $22m in T-bills while the outflow for the same was $62.8m. There wasn’t any inflow or outflow in PIBs.

The political uncertainty in the 2nd half of FY22 played a key role to keep the foreign investors away from Pakistan.

During the two months, March and April, no foreign investment was received in T-bills and PIBs which was mainly due to the highly uncertain political situation in Pakistan. Investments from both domestic bonds were withdrawn during this period by foreigners.

Since the change of government in Islamabad, the risks in the investments have been increasing while the massive appreciation of the dollar against the local currency and great fluctuations in the exchange rate discouraged investors’ sentiments.

The short-term three-month T-bills rate was higher than the policy rate of 15pc but the bankers said the devaluation of local currency is a serious hurdle in attracting foreign investment in T-bills.

The disastrous impact of floods has yet not come visible in the economy despite food prices going up which will certainly push inflation higher than the government’s estimates. The government and the State Bank of Pakistan estimate that the inflation may go up to 19pc during FY23 but will start easing in FY24.

Bankers believe that the higher inflation would force the central bank to increase the interest rate which would further increase the T-bills and PIBs rates. However, bankers maintain that foreign investors will remain away until the IMF resumes loans, other creditors release funds for Pakistan and the foreign exchange reserves of the country see a vital positive change.

Published in Dawn, August 30th, 2022