KARACHI: A significant drop in profit rates over nearly seven months caused 87% of foreign investment in Pakistan to leave treasury notes, or T-bills.
The first seven months of the current fiscal year saw a halving in T-bill returns. Even though the exchange rate remained steady for more than a year, these significant outflows nonetheless happened.
The withdrawal of foreign investments from T-bills could be caused by a variety of different circumstances, according to financial industry specialists.
Data from the State Bank of Pakistan (SBP) shows that between the beginning of July of last year and January 17, $984 million was invested in T-bills. On the other hand, throughout that time, the outflow was $852 million.
A sharp drop in returns is allegedly the cause of the large outflow.
Due primarily to a sharp decline in interest rates after June 2024, T-bill returns fell more than 50% from their peak of 24%. The policy rate of the State Bank has been cut by 1,000 basis points (bps) to 12 percent.
The government further lowered T-bill rates by up to 41bps for various tenors at the final auction before to the monetary policy announcement on January 27.
This month, the rate was lowered by 90bps to 11.38pc, with the return on a 12-month tenor being reduced by 41bps to 11.38pc from 49bps at the auction on January 8.
Despite the authorities’ assertions that the majority of this issue has been resolved, market experts claimed there is still uncertainty surrounding the $26.1 billion in debt servicing in FY25.
According to a banker, foreign investors are the most vulnerable components of any economy since they depart the nation before they might be caught in an economic trap. This was evident during the COVID-19 pandemic, when more than $4 billion departed the country in a matter of months.
The return on benchmark 6-month T-bills dropped by 39 basis points to 11.4 percent in the final auction conducted before to the monetary policy.
According to financial analysts, T-bills are no longer appealing to overseas investors since, following a 100 basis point interest rate drop, rates may continue to decline.
Up until January 17, there was a $121.5 million outflow of foreign investment, which was greater than the $72 million influx during that time.
It was also noteworthy that the UK accounted for $630 million, or 64 percent of the total T-bill inflows over the six and a half months, with the largest outflow being $457 million.
During this time, there were also notable T-bill inflows of $152 million from the United Arab Emirates, $61 million from Bahrain, and $52 million from Australia.