64pc foreign investment withdrawn from T-bills

KARACHI: About 64 per cent of foreign investments in treasury bills (T-bills) have been withdrawn and returned to their destinations, disappointing the government striving to attract dollar inflows.

Market experts offer several reasons for this trend of outflows from domestic bonds but mostly believe that frequently declining returns on T-bills are due to falling policy interest rates and political uncertainty.

The latest data from the State Bank showed that slightly over the first five months of FY25, the cumulative inflows in T-bills were $866.6 million, while the outflows were $550.6m.

Financial experts said the outflows increased in the last couple of months mostly because of a fast decline in the interest rate, which ultimately reduced returns on T-bills.

In the last auction of T-bills held on Dec 11, the cut-off yield on the benchmark 6-month tenor was 11.99pc and 12.2pc on the 12-month paper, much lower than at the beginning of the current fiscal year. The T-bill rates were more than 21pc, while the interest rate was 22pc. The SBP has slashed its policy rate by 900bps since June, which resulted in a sharp reduction in profit rates on T-bills.

Bankers said there is no hope for an increase in the bond rates, and the same is the situation with the foreign investments as the inflow would dry in the coming months.

During the first week of December, the net inflow of foreign investment was zero, while the outflow was $5.5m, indicating the future trend.

The highest inflows for the T-bills came from the UK, which reached $596.6m from July 1 to Dec 6. However, the outflow was also steep as foreign investors withdrew $264.5m in the same period.

The inflow from the UAE was $85m, while the outflow was $71m. Other important inflows came from Australia and Bahrain, with $52m and $50m, respectively. The outflows to the countries were $29m and $4.2m respectively.

Bankers said that political uncertainty damages the economy as foreign and domestic investors are not ready to take risks by investing in the country.

They added that foreign investors could find better returns from other countries with lesser risks. Even though no country or foreign investor has lost money in Pakistan, foreign investors never trust Pakistan for any major investment.

Published in Dawn, December 24th, 2024