July 8, 2021 (MLN): Pakistan’s currency bonds during FY21 yielded a net inflow of $61.5 million, still nowhere close to pre-covid days, however, it reflects renewed optimism of overseas investors in Pakistan’s economy.
In the previous fiscal year i.e., FY20 country attracted a net $700mn worth of foreign investments in T-bills and PIBs on the back of higher interest rates during the first eight months of FY20.
The recent data issued by SBP shows that during FY21, foreign investors poured in $973.64mn government-backed securities against the outflow of $912.13mn in the same period, resulted in a net investment of $61.5mn.
To recall, the influx of hot money first started coming in July 2019 and surpassed $3 billion by Feb 2020, courtesy of a stable currency and high-interest rates. This steady stream of investment was hardest hit in March 2020 as the Coronavirus sent shockwaves through financial markets and panicked investors withdrew from risky assets and by Nov 2020, only $433.6 million was left in T-bills and PIBs.
In December 2020, the flows started restoring amid economic recovery and higher yields and in the month of March’21, the highest monthly inflows were recorded since May ’20.
Both T-bills and PIBs gained investors’ heed, however, the surprising part was, foreign investors showed greater interest in long-term debt instruments (PIBs), as they invested a net of $263.84mn in PIBs while offloaded $202.3mn from T-bills.
The revival of foreigners’ interest in Pakistan’s long-term paper is ascribed to economic recovery and higher returns than the investment in governments bonds globally. To note, Ten-year PIBs offered a 9.84% return in the auction held on June 9. Also, PKR stability and interest rates are the important factors to attract foreign investment in debt securities which have been remained favorable in FY21 for carrying trades.
Foreigners’ appetite for Pakistan’s long-term debt instruments shows that they are optimistic about Pakistan’s economy that the economic slump caused by the pandemic will not last for the longer term. During FY21, PIBs attracted $285.4mn foreign investment against the slight outflow of $21.5mn, according to the latest figures of SBP. The data shows that inflows in PIBs started in Nov’20 and after witnessing over $100mn inflows in PIBs during March’21, investments in PIBs were dropped in May’21 to $9.9mn. Moreover, the month of April’21 proved extremely disappointing as the inflows were not more than $5mn.
The data further shows that most of the inflows in PIBs were from the United States which reached $124.37mn in FY21. The inflows from Luxemburg were the second highest with $115.3mm against the outflow of $11.7mn. Furthermore, significant inflows of $21.4mn and $20mn were received from the Philippines and UK, respectively.
On the other hand, T-bills did not gain much investors’ attention during FY21, although it fetched more investments than PIBs, the overall impact was negative due to higher inflows. During the period under review, T-bills, witnessed $688.2mn worth of inflows, while outflows stood at $890.6mn, bringing net outflows to $202.3mn.
Country-wise, the highest investor was the UK as its total investment in T-bills during FY21 was $432.8mn against the outflows of $772.6mn. UAE emerged as the second major investor with inflows amounting to $136.6mn.
On the equity front, overseas investors’ confidence remained subdued as Pakistan Stock Exchange saw an outflow of $1.1bn in FY21 against the inflow of $673.4mn. This has brought the overall net divestment (T-bills, PIBs and Equity) to clock in at $368.2mn for FY21.
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