Islamabad, Sep 7: A $78 million disinvestment in the first half of August, foreign investment inflows into Pakistan’s domestic bonds have sharply reversed from their record inflows in July.Data from the State Bank of Pakistan (SBP) shows that during the first 15 days of August, foreign inflows into T-bills were $8.2 million, while outflows rose to $86.3 million, leaving a net outflow of $78.15 million.
There was a net investment of $91.5 million for the months of July and mid-August due to total inflows of $271.5 million and withdrawals of $180 million. The abrupt withdrawal is linked to a reduction in treasury bill (T-bill) returns, which investors anticipate will continue to shrink in the upcoming months. T-bill inflows hit a record $258.3 million in July thanks to favorable yields and a stable currency rate.
The SBP’s decision to lower interest rates by 100 basis points to 19.5% on July 29 is largely responsible for the turnaround in investment patterns by lowering T-bill returns. For 12-month T-bills, the returns have already decreased to 17.4% and 16.99%, respectively, which has made them less appealing to overseas investors.
As the government battles to obtain a $7 billion loan from the International Monetary Fund (IMF), which has reportedly asked Pakistan to arrange a $12 billion rollover from China, Saudi Arabia, and the United Arab Emirates, financial experts predict significant decreases in T-bill inflows.
The steady currency rate and the SBP’s $9.4 billion foreign exchange reserves had originally supported the inflows; but, declining inflation and the potential for further rate reductions may make Pakistani bonds less desirable.
Pakistan saw a total inflow of $580.8 million into T-bills during the preceding fiscal year. Even if Fitch and S&P’s credit ratings have recently improved, the country still confronts challenges in servicing its external debt and finding foreign investors willing to lend money. These recent outflows, however, point to possible troubles down the road.
