ISLAMABAD, JULY21: In the fiscal year ended June 30, 2024, foreign investors invested $581 million, the second-highest amount ever, in Pakistan’s government debt securities, specifically three to 12-month T-bills. This substantial investment demonstrates growing optimism about the home economy.
Topline Research reported, using data from the State Bank of Pakistan (SBP), that in June of FY24, Pakistan attracted a net investment of $194 million in the debt instrument alone, increasing the total investment to $581 million for the full year. After reaching a peak of $621 million in FY20, they are Pakistan’s second-highest net inflows in a year. Since FY20, these inflows have been the greatest for the last four years.
According to the research house, the foreign portfolio investment reached an all-time high of $1.4 billion in January 2020 in less than a month. Since January 2024, foreign investors have made a strong comeback to the domestic debt market, fueled by the rupee-dollar exchange rate’s recent stabilization at Rs278–278.63/$ and the promise of a significantly higher rate of return on T-bills roughly 20% as opposed to 6-7% on debt securities in developed nations around the world.
The country’s foreign exchange reserves, which are kept by the State Bank of Pakistan (SBP), have stabilized at $9.42 billion thanks to inflows of hot money into the portfolio. This has improved the external economy. According to a dissection of the central bank statistics, portfolio investors headquartered in the UK made the single largest net investment in Pakistan’s T-bills in FY24, contributing $322.5 million. Investors based in Belgium then made the second-highest net investment, contributing $107.5 million. With $74.7 million invested in the year, US investors came in third place in terms of investment volumes. Other nations such as Australia, Bahrain, the Cayman Islands, Ireland, Luxembourg, and the United Arab Emirates also made such investments.
Muhammad Awais Ashraf, Director of Research at AKD Securities, predicted that foreign investors would keep putting more money into rupee-denominated T-bills in an interview with The Express Tribune. In two years (FY19 and FY20), the exceptional global investment volume might return to the all-time high of $3.6 billion. Due to the COVID-19 epidemic, foreign investors have been actively withdrawing their assets. According to him, returns on investment in T-bills would remain high even if they were to be revised down by a few percentage points in the near future because there is still a sizable difference between the rates of return on T-bills and those in developed countries. The rupee-dollar parity is expected to remain stable over the next four to six months at roughly its current level.
Furthermore, a few wealthy nations have also started reducing rates, such as the central banks of Canada and Europe. In order to preserve Pakistan’s favorable return on investment gap, the US is likewise thinking about cutting interest rates. After the $7 billion new loan program for Pakistan received final clearance from the International Monetary Fund (IMF) Executive Board, many financial analysts predicted that hot money inflows would increase dramatically.According to Ashraf, the steady monetary policy that Pakistan’s central bank has maintained—including a record-high policy rate of 22% from June 2023 to June 2024 and the first rate reduction in four years last June to 20.5%—is what has led to the influx of foreign investment.
In order to improve interbank and open currency markets, the bank also implemented structural changes, cracked down on foreign exchange smuggling, and started to consolidate minor currency businesses in order to boost liquidity. The result was that from the first week of September 2023 to the last week of March 2024, the value of the domestic currency increased by 10.8%, or Rs 30. It has stayed steady in the Rs278–278.63/$ range ever then.
