Foreign investment in govt securities touches $84.60mln in FY 2021/22

KARACHI: Foreigners invested $84.60 million in government securities since the beginning of the current fiscal year of 2021/22, which is higher than $76.92 pulled out in the same period from Pakistan’s debt market, State Bank of Pakistan data showed on Monday.

Foreign investors invested $68.62 million in Treasury Bills and $16.07 million in Pakistan Investment bonds (PIBs) as of August 06, 2021, respectively. However, foreigners pulled out the same $68.62 million from T-bills and $8.30 million from PIBs. Foreigners were net buyers of $7.67 million of the country’s government securities.

“The reason for inflow in government securities is that the IMF is expected to disburse $2.8 billion to Pakistan. As a result, the sentiment towards the currency and forex outlook of Pakistan has improved,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

“Therefore, the foreign investors have poured money in Pakistan.” The Board of Governors of the IMF approved a general allocation of Special Drawing Rights (SDRs) equivalent to $650 billion to boost global liquidity. The general allocation of SDRs will become effective on August 23, 2021.

Analysts said Pakistan’s debt securities are still attractive for the global investors as they hunt for higher yielding fixed income securities amid a low yield environment worldwide. “It is nothing substantial. The amount is so small, maybe some foreign entity working here has bought it for better return,” said Muzammil Aslam, a CEO at Tangent Capital.

Foreign inflows in T-bills have been largely neutralized by the outflows highlighting the absence of fresh investments (most likely rollover of existing investments). “Reason for this lack of foreign interest in the T-bills is the concern over stability of local currency,” said Syed Masroor Hussain Zaidi, a senior research analyst at Foundation Securities.

“To highlight, Pakistani rupee has depreciated 4 percent against the dollar during FY22 alone. Mitigation of this risk requires currency hedging which further bumps up the cost leaving lower return for the investors,” Zaidi said said, while adding if rupee remains stable going forward, then it may create opportunities for the flow of foreign investments in the shorter tenor. Analysts don’t figure out any specific reason for the decline in global investors’ appetite for Pakistan Investment Bonds (PIBs), despite the higher returns being offered on long-term debt securities. The Covid-19 challenges and political tension in Afghanistan, however, do not let them prolong their stay in Pakistan, resulting in keeping investments low in the current fiscal year to date.