Home ›› 01 Dec 2020 ›› World Biz
Foreign investors have pulled out 471.7 million US dollars from Pakistan's debt market in the past five months due to lower interest rate and a fresh wave of coronavirus in the country, according to data from the State Bank of Pakistan (SBP).
Citing analysts, The News International has reported that the continued hot money outflows from the local fixed income market have indicated that the low-yielding government debt has become less attractive for foreigners with the SBP having slashed policy rates by 625 basis points to 7 per cent since mid-March.
"The withdrawal could be because rates are close to all-time lows and are not lucrative enough for investors," said Saad Hashemy, executive director at BMA Capital.
"Increase in rates will result in losses and maturing investment is not being rolled over as foreign investment in the local bond market started late last year," Hashemy added.
However, the government securities such as market treasury bills and Pakistan investment bonds received a combined total inflow of 205.6 million dollars from July 1 to November 25, The News International said quoting the SBP.
The data has further stated that the foreigners became net sellers of 266.1 million dollars worth of treasury bills and investment bonds during the period under review, The News International said.
According to the analysts, SBP seems to be hesitant towards tightening monetary policy till the first quarter of 2021 as a move to revive the pandemic-hit economy.
"They said average 7 per cent yields on the treasury bills and 8-10 per cent on the investment bonds are still attractive for the foreign investors when compared with negative and near-zero interest rates in the United States and Europe. The stability in the exchange rate, after appreciation in rupee value versus the US dollar, has not propelled the foreign investors to buy Pakistan's debt," the Pakistan daily said.
Foreigners had bought 90.9 million dollars worth local currency bonds between July 1 and November 25, and disposed of 36 million dollars from the short-term instruments, the SBP data said.
"We saw outflows only from the treasury bills in November, but foreigners invested both in treasury-bills and the investment bonds during the month," said another analyst.
"This trend shows foreign investors can step up buying of the rupee-denominated bonds and such inflows to the country should resume once the interest rates are started going up. It also depends on a faster economic recovery in the world and in the country following the positive news on the vaccine progress," the analyst added.
Quoting the SBP, The News International said, activities in the local currency debt securities largely drove the portfolio investment, with net portfolio inflows surging to 2.1 billion dollars during July-February, and then reversing to a net outflow of 2.7 billion dollars in the March-June period.
"It is important to highlight that the reversal in capital flows in this latter period was not unique to Pakistan. The outbreak of the Covid-19 pandemic, specifically in advanced economies, led to a global flight of capital from emerging and developing economies," it said in the latest report.
While Pakistan could not bring in foreign exchange inflows into the local currency debt market, the SBP's foreign exchange reserves reached 13.4 billion dollars by November 20 as compared to 12.1 billion dollars by June-end.
The News International has reported that this increase in the reserves is due to a surplus in the current account, higher remittances, and increased inflows from the international financial institutions.
(Source: ANI)
