Foreign Investors Divest Over $4 Billion from Govt Securities

After making handsome returns, the foreign investors continued to divest their money from the government securities, which have surged to more than $4 billion.

According to the State Bank of Pakistan, the foreign investment in government securities including – Market Treasury Bills or T-Bills and Pakistan Investment Bonds (PIBs) recorded an outflow of a massive $4 billion during the period of July to May 20.

These investments, particularly in T-Bills, recorded handsome inflows from August to December last year from foreign investors mainly from UK and USA with huge investments due to the higher profit rate offered by the central bank.

Besides investors from UK and USA, fund managers from other countries, including Luxembourg, the UAE, Bahrain, Cayman Islands, and Ireland had been quite active in making investments in Pakistan.

Market Treasury Bills or T-Bills are the instruments that the central bank floats in the market to raise the money for a period of three to 12 months. Usually, financial institutions make the investment in such government paper and books guaranteed and easy returns, hence, this time overwhelming foreign investment is being witnessed.

The central bank waved off taxes on the investment on the government’s papers earlier in January this year to attract investment from foreign fund managers.

However, the central bank could attract investments of $4.39 billion as the hot money which maintained the reserves of foreign exchange significantly for quite a few months. Major fund managers divested their investments from the government and never came back. The outbreak of Covid-19 in developed countries created panic and uncertainty which compelled the rest of the investors to pull back their investment.

Presently, the hot money values squeezed by 92 percent to reach $333 million from $4.39 billion as investors divested over $4 billion in the past few months.

Due to economic slowdown, the State Bank of Pakistan (SBP) has reduced the policy rate from 13.25 to 8 percent to stimulate the business and economic countries in the country. In this scenario, the profit rates on the government securities, T-Bills and PIBs– will not be attractive for the foreign investors in the near future.

The fund managers made investments and earned handsome returns but their hot money did not benefit the economy of the country but pushed it towards more trouble that was forecasted by a few economic managers earlier.