KARACHI: The UK investors withdrew their biggest investment of about $31 million in treasury bills as foreign inflows stood at just $3.3m during the first quarter of the current fiscal year.

The latest data of the State Bank of Pakistan (SBP) revealed that the foreign investors during July-September FY23 did not take any interest in the domestic bonds despite very high returns of up to 16 per cent.

The data showed that during the period under review the inflows from the UK — the country that topped the list of foreign investors for domestic bonds — in T-bills were only $3m while the outflows stood at $31m.

However, total inflows in T-bills during the first quarter amounted to $13m against the outflows of $36.8m.

Pakistan Investment Bonds (PIB), which have been highly attractive in the domestic market, failed to attract a single dollar from abroad; instead, an outflow of $0.2m was noted during the first three months of the current fiscal year.

The PIB, which was launched four years ago to attract foreign investment, attracted about $4 billion, but the inflows vanished following the Covid pandemic and since then no visible improvement was noted.

The SBP has maintained the policy interest rate at 15pc, which is very high compared to the developed world and other developing economies. However, analysts and bankers are of the opinion that the interest rate is still negative since inflation remained in the range of 23 to 25pc during the first quarter.

The last auction held for the treasury bills noted equal returns of 15.99pc for all the three-, six- and 12-month papers.

Apparently, the returns are highly attractive, but bankers believe that the risk associated with the economy’s external front is more important for investors.

Pakistan has failed to improve its foreign exchange reserves, while the exchange rate behaves like sitting on a rollercoaster. Frequent changes in the exchange rate are not acceptable for any investor while foreign investors are particularly sensitive to the stability of the economy and exchange rate.

The overall inflows during the first quarter of FY23 (including equity-$40m) stood at $53m and the outflows (including equity-$62.9m) $100m, showing a cumulative negative net flow of $46.8m.

Published in Dawn, October 4th, 2022