KARACHI: The continued stability in the exchange rate has made treasury bills (T-bills) attractive for foreign investors, as increased inflows noted during the first 15 days of the current month, according to sources in the financial sector.

State Bank of Pakistan’s latest data shows that market treasury bills attracted $13.863 million during the first 15 days of March FY24.

Financial market experts find this trend encouraging, despite poor economic performance and persistent political uncertainties.

However, experts said that the primary reason is the stable exchange rate, which has remained steady for about three months, assuring investors of “less risk”.

Stable exchange rate makes T-bills a lucrative bet for foreign investors

Pakistan’s domestic bonds offer returns of 21.66 per cent for three-month T-bills, 20.39pc for six months, and 20.89pc for 12-month papers. The returns are paid in Pakistan rupees, but investors are allowed withdraw their profits and invest in dollars.

The domestic bonds were highly attractive to foreign investors before the emergence of Covid-19. However, most of the investments returned after the pandemic. Since then, the country has been waiting for new investors.

Experts said it is difficult to determine how long the exchange rate would remain sustainable, but the prevailing stability is a positive sign for investors. Although foreign direct investment did not see any improvement this year, inflows for T-bills and equities have increased significantly during FY24.

From July 2023 to March 15, 2024, total T-bill inflows reached $80.4m, reflecting rising investor interest. Despite the central bank maintaining a high 22pc interest rate this month, inflation remains unaffected. The high interest rate, combined with a stable exchange rate, supports experts’ views that T-bill inflows could rise in the coming months, provided the exchange rate remains undisturbed.

Some currency experts believe the exchange rate is being managed at the current rate and is being overlooked by the IMF. On Monday, the dollar was traded at Rs378.13 in the interbank market.

Last week, the SBP’s foreign exchange reserves increased to $8bn with expected inflows of about $1.1bn from the IMF likely to further enhance reserves.

Additionally, the country plans to launch Panda Bonds of up to $350m in the Chinese market, which, if successful, would aid Pakistan in debt servicing.

Debt servicing in FY25 requires up to $25bn, with $1bn needed to pay maturing euro bonds next month. SBP data shows the country received a total of $441m during FY24, including $330.5m for equity investment and $80.4m for T-bills.

The new government, like the previous caretaker finance minister, believes Pakistan requires another IMF package of up to $8bn to support the economy.

Published in Dawn, March 26th, 2024