Foreign investors inject $143.6 million in t-bills since July

KARACHI: Foreign portfolio investors invested $143.633 million in treasury bills from July onwards as the present government started betting on overseas funds into debt securities to finance budget deficit and refinance maturities.

The State Bank of Pakistan’s (SBP) latest data showed that outflow from portfolio investors amounted to $5.808 million between July 1 and September 19.

Currently, inflows are coming from two sources: the United States and UK. Investors from the US injected $104.097 million since the start of the current fiscal year compared with $39.536 million from the UK. All the outflows, during the period, belonged to British investors.

Samiullah Tariq, director research at Arif Habib said the government intends to attract portfolio investment in t-bills to increase foreign exchange reserves and develop debt and foreign exchange market. It has relaxed taxation on investment in the government securities by non-resident companies that have no permanent business in Pakistan. Withholding tax on investment in t-bills was significantly reduced to 10 percent from 30 percent.

“For development of longer-term yield curve, foreign investment in PIBs (Pakistan Investment Bonds) would be helpful as well,” Tariq added. “However, taxation on PIBs is higher than t-bills for non-resident companies. Therefore, no major investment is expected in longer-term PIBs.” No investment in PIBs was made since July, the SBP’s data showed.

Analysts, however, said investment in long-term government securities is presently difficult to be lured with yields on them declining with the policy rate downward outlook. The central bank, in its latest monetary policy, kept the benchmark interest rate unchanged for the next two months after pumping it up by 750 basis points since January 2018. The rate outlook hinges on inflationary and exchange pressures which have relatively subsided.

The research director said foreign portfolio investment in t-bills could increase foreign exchange reserves, net international reserves in line with the International Monetary Fund’s requirement and develop a liquid foreign exchange market, “which can induce confidence into foreign investors in Pakistan”. Tariq said investors intending to make strategic investments in the country would become more comfortable with the availability of a deep and liquid foreign currency market.

“In our view, deepening of debt and foreign currency markets should be a bigger objective than building foreign exchange reserves,” he added. “Deep financial markets could not only help improving capital formation but also support deepening the savings and investment to GDP ratios of the economy.”

Tariq said the only risk is that if a major investor intends to liquidate its investment in treasury bills and repatriates dollars, a market determined currency could ‘drastically’ devalue. “But, we could only lose money which we receive,” he said, citing the SBP Governor’s recent comment.