KARACHI, September 07 (TDI): Domestic bonds in the country is feeling pressure as foreign investment inflows into domestic bonds reversed recently with disinvestment of $ 78 million.
The disinvestment started in August and the first 15 days witnessed disinvestment of 78 million in dollars, media reported on Saturday.
According to the investors declining returns on treasury bill is main factor behind this phenomenon of disinvestment, and it is likely to decrease further soon as prevailing situation suggests.
The State Bank’s latest data shows that investment inflows declined sharply in August that indicates changing trend in investment in the sector.
Experts forecast further decline in the bill inflows due to decreasing returns on T-bills and the government’s increasing complexities for $7 billion loan from the IMF. IMF has reportedly urged Pakistan to secure a rollover of $12bn from China, Saudi Arabia, and the UAE.
The foreign investment inflows in 15 days of August was $8.19 as against an outflow of $ 86.347 with the net outflow $78.15m.
Inflows depends on the stable exchange rate and attractive returns on domestic bonds. However, the State Bank’s decision in July caused to cut interest rates by 100 basis points to 19.5 per cent decreasing returns on T-bills.
Yet as the experts said the returns on T-bills declined as compared to the past but this is still too high compared to other developing economies.
Read More: Pakistan’s SIFC Briefing Focus on Foreign Investment
But what motivated Foreign investors to invest more before the state bank’s decision is that they were borrowing from foreign banks at lower rates to invest in Pakistan and earn more than double in returns.
Financial analysts maintain that the stable exchange rate, supported by the State Bank’s foreign exchange reserves of over $9.4 billion, reflects economic stability, as both exports and remittances are on increase.
However, the declining inflation has forced the State Bank has limited options to cut the interest rate and declining inflation is a major factor. Further cut is expected and more reduction in investment is predictable.
And the situation could create problem in external debt servicing, as experts expressed their views in various media reports.
