Foreign inflows into domestic bonds dried up to zero in April

KARACHI: Foreign investment inflows into domestic bonds have remained flat in April so far despite over 13% risk-free returns.

Bankers said the country had paid a heavy price for political uncertainty over the past two months, which also saw massive outflows of Pakistani investment bonds (GDPs) and treasury bills.

The government previously allowed foreigners to invest in domestic bonds to attract quick investment and attracted around $3.5 billion, but the emergence of Covid-19 in March 2020 evaporated almost all of the gains.

However, current Treasury and BIP yields have reached over 13%, which can be very attractive for investors. The limit yield on three-month Treasury bills jumped to 13.5%, while yields on six- and 12-month maturities rose to 13.85%.

“Foreign investment is generally considered highly sensitive and speculative. Political uncertainty resulting from a change of government in Pakistan has prompted investors to watch and avoid investments,” said SS Iqbal, a senior banker.

The latest data from the State Bank shows that there was no inflow of investment in Treasuries and BIPs, while the two noted an outflow of $14.15 million and 14, $97 million, respectively, as of April 21.

This was also reflected in foreign direct investment (FDI) inflows in March, with the month seeing a net outflow of $30.4 million compared to an inflow of $173.4 million in the same month l ‘last year. While admissions have been declining since the beginning of the year, March turned out to be one of the worst months.

Bankers said the situation would not change for investors until the newly formed government proves it has settled in with full command in Islamabad.

In addition, ongoing negotiations with the International Monetary Fund may also end government subsidies on oil and electricity prices, adding to political uncertainty.

Mr Iqbal said the fluid situation was reflected in the rising value of the dollar and a depressed stock market.

He said FDI outflows in March affected the investment environment and overall inflows in the nine months to March fell 2% instead of registering growth.

The data shows that total foreign investment inflows (including $376.7 million in the equity market) in July-March was $672.9 million, while outflows (including $851.8 million market share) were $1.727 billion. The cumulative net flow over the nine months represents a deficit of $1.054 billion.

The absence of foreign investment inflows into domestic bonds and a net outflow of FDI also had a negative impact on the exchange rate, as the rupiah has no support to hold firm against a bullish dollar.

Posted in Dawn, April 23, 2022

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