Foreign investors divested a staggering amount of $31 million from the domestic bonds including treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) in July despite high-profit rates.
According to the State Bank of Pakistan (SBP), an inflow of just $3 million was recorded in treasury bills in July while the outflow was much higher at $31.085 million, resulting in a net outflow of $28 million.
Before the pandemic in 2020, foreigners were allowed to invest in domestic bonds which quickly attracted around $3.5 billion but most of the investments left the country as the country was hit by Covid-19 and since then no significant foreign investment returned to domestic bonds.
T-bills attracted an investment of $22 million in June, while the outflow was $62.8 million. However, PIBs witnessed zero response from foreign investors during the month. The regime change in Islamabad also impacted investor confidence as uncertainty that emerged out of this change further hit the investment climate.
During March and April, no foreign investment was received in T-bills and PIBs, rather massive withdrawals were made due to the highly uncertain political situation. On May 6, the country received $9.9 million after a gap of almost two-and-a-half months. The returns were attractive but the risks due to uncertain political instability barred foreigners to invest during the fiscal year FY22, instead, the outflows from the domestic bonds were over $1 billion.
The crisis of rupee depreciation and declining foreign exchange reserves have further fuelled the uncertainty as only investors from the United Kingdom were earning and withdrawing money from these bonds. It is noteworthy that the cut-off yields on T-bills had been revised higher than the SBP policy rate of 15 percent to make them more attractive. In the July 27 auction, the three-month T-bills offered 15.74 percent, six-month 15.8 percent, and 12-month 15.94 percent.
Bankers said the devaluation of local currency is a serious hurdle in attracting investment to T-bills as foreigner get their profits in the local currency and they have to buy dollars from the market while the rupee has been losing against the greenback on a day-to-day basis.
Overall, the government papers received a total of $341.2 million (including T-bills: $236.9 million and PIBs: $104.3 million ) while the outflows were $1.055 billion in the entire FY22.