KARACHI: After a recent rise in cutoff yields, Pakistani investment bonds (GDP) attracted more than $ 12.7 million in foreign investment in the first week of this month, helping the country’s external account to improve its reserves, according to data released by the State Bank on Monday showed.
The government accumulated long-term borrowing through BIPs and raised threshold yields to 42 basis points on February 27.
The threshold yield rose to 9.41% for three-year GDPs, 9.9% for five-year bonds and 10.05% for 10-year bonds.
For the first time since the Covid-19 epidemic in March 2020, foreign investment in domestic bonds has crossed the cumulative figure of $ 150 million.
However, this time around, BIP outflows are almost negligible as they were only $ 0.3 million in the current fiscal year. The influx into BIPs started in November 2020 and has grown steadily. The latest increase in GDP rates raised the real interest rate, making investment more attractive.
SBP data shows that all of the $ 12.7 million invested in GDP came from the United States. The Federal Reserve’s interest rate is at an all-time low of 0.25%, which could be one of the reasons for the increase in investment from the United States. Of the total inflows of $ 150.3 million into BIPs, about $ 104 million of investment came from states.
Foreign inflows of treasury bills have continued but outflows are more important. In the current fiscal year, total treasury bill inflows amounted to $ 424.2 million while outflows were $ 628.2 million.
Before the pandemic, total inflows – mostly in treasury bills – were $ 3.5 billion. However, within a few months, most of the investments returned to their origin.
Foreign entries into the equity market continue, but exits are also greater. In the current fiscal year, entries into the equity market amounted to $ 398.2 million versus outflows of $ 711.5 million, reflecting low confidence in stock market movements.
Bankers have said the inflow via GDPs is encouraging, although it may create problems for the next government when the bonds mature.
Pakistan has remained a high inflation economy that offers higher interest rates and investors, usually banks, derive most of their profits from government papers.
Banks and other investors have collectively invested more than $ 14 trillion in BIPs. However, no data is available that could show which tenure attracted most of the investment. Bankers noted that three-year GDPs with yields of 9.4% have become very attractive to foreign investors.
Posted in Dawn, March 9, 2021