Govt bonds fail to attract dollars despite record returns

Published March 22, 2023
The rupee on Tuesday rose 11 paise against the US dollar to close at 283.92 after losing 0.82pc the previous day amid growing uncertainty about revival of IMF programme.—AFP
The rupee on Tuesday rose 11 paise against the US dollar to close at 283.92 after losing 0.82pc the previous day amid growing uncertainty about revival of IMF programme.—AFP

KARACHI: A record increase in returns on treasury bills and Pakistan Investment Bonds (PIBs) has failed to attract a single dollar.

The State Bank of Pakistan (SBP) increased the interest rate by 300 basis points to 20 per cent and the discount rate to 21pc on March 2 to counter high inflation.

Before announcing the interest rate hike, the government had already increased the treasury bill returns to 21pc. Banking experts said the decision favoured investors, mostly banks, but was against the government as the borrowing became too costly.

However, there was an expectation in the financial market that with 21pc returns on treasury bills, foreign investors would join the race to get maximum benefits. The returns are the highest in the region, including India and Bangladesh.

Data shows that there has been no inflow in treasury bills and PIBs since the beginning of the second half of this fiscal year. The first half (July-December) was also not encouraging as the inflows in treasury bills were just $18m while the outflows during the same period were $59m. There was no inflow in PIBs, while the outflow was $0.328m in the first half.

Experts and analysts said treasury bills have a great attraction for foreign investors, but the prolonged economic and political uncertainties are enough to keep them from investing in Pakistan.

However, a senior banker said that a more serious problem is with the State Bank. The companies have been blocked from sending their profits and dividends abroad. There is no use investing in Pakistan if the profits could not be remitted abroad.

The repatriation of profits and dividends during the first seven months (July to January) of this fiscal year drastically dropped, indicating that companies were not allowed to remit their profits abroad.

The SBP data shows that profits and dividends sent abroad during the seven months fell to $220m from $1.013 billion in the period a year ago.

Since the foreign exchange reserves have declined to the lowest level, the central bank is trying to stop the outflow of dollars. This was the reason that profit outflows during July-January fell to just $220m. Also, the SBP discourages opening letters of credit (LCs) for imports.

For bankers, there is no chance for improvement in the inflows since Pakistan’s external account faces a serious threat of default. The threat creates risk for the investors while outflows have been stopped.

Published in Dawn, March 22nd, 2023

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