T-bills attract net $186m foreign investment inflows

KARACHI: Foreign investors have purchased a net $186 million in Pakistan’s short-term government debt securities so far this fiscal year, despite declining returns amid monetary easing by the State Bank of Pakistan (SBP).

Between July 1, 2023 and January 3, 2024, overseas investors invested $937.3 million in Treasury bills, while divestments amounted to $751.4 million, data from the SBP showed on Wednesday.

As of January 3, foreign investors had bought $25.876 million in T-bills compared with withdrawals of $20.514 million, resulting in net inflows of $5.359 million. However, T-bills experienced outflows of $20.8 million in December, following outflows of $4.8 million in the previous month.

In December, the SBP cut the policy rate by 200 basis points (bps) to 13 per cent, marking the fifth consecutive cut since June. This brings the total rate reductions for 2024 to 900bps.

Analysts attribute the interest of foreign investors in Pakistani bonds to the country’s improving macroeconomic conditions and currency stability.

Awais Ashraf, director of research at AKD Securities Limited, noted that foreigners continue to be net buyers of T-bills, driven by the enhanced macroeconomic environment and currency stability that have attracted increased foreign investment. He explained that the foreign outflows from T-bills in December were largely due to the higher maturity of Rs2.4 trillion in T-bills, which was more than double the amount raised, Rs1.2 trillion, during that month.

Finance Minister Muhammad Aurangzeb stated in an interview with Bloomberg that the government plans to issue yuan-denominated bonds to raise $200 to $250 million from Chinese investors this year to strengthen the country’s finances. Additionally, the government remains optimistic about meeting the bailout loan conditions set by the International Monetary Fund (IMF). The IMF’s mission is scheduled to visit Pakistan next month.

The country’s sovereign rating has been upgraded by all three major credit agencies. Aurangzeb expressed hope for further upgrades to reach the “single-B” rating category, which would allow the country to return to global bond markets to raise funds.

Pakistan has experienced economic stability, with inflation dropping from 38 per cent in May 2023 to 4.1 per cent last month. The country secured a $7 billion, 37-month bailout from the IMF in 2024, alongside a one-year debt rollover agreement with China.