Foreigners remain bullish on T-bills with $193m investment

KARACHI: Foreign investment in rupee-denominated bonds kept rising as investors became more drawn to Pakistan’s local debt due to the high interest rates, stable currency, and expectations of a new bailout from the International Monetary Fund (IMF).

Pakistan has attracted a $35.6 million net inflow of dollars into treasury bills through Special Convertible Rupee Accounts (SCRAs) in the current month until May 10, Topline Securities reported on Thursday, citing data from the State Bank of Pakistan (SBP).

Net inflows into the debt securities have totalled $193 million since July 2023.According to the data, foreign investors resumed buying Pakistan’s government debt from January 2024 as the economy showed signs of recovery. The current account balance considerably improved primarily due to the narrowing of the trade deficit. The central bank’s gross foreign exchange reserves more than doubled from $3.1 billion in January 2023 to $9.1 billion as of May 17, 2024, and forex liabilities declined sharply, so the nation’s foreign exchange buffer has improved.

Pakistan completed a short-term $3 billion IMF stand-by arrangement last month that helped prevent a sovereign debt default. Pakistan is negotiating a new loan programme with the IMF. The country expected to secure a fresh loan from the IMF, amounting to $7-8 billion in July. The hopes for the new IMF loan deal help turn around foreign investor sentiment. Notwithstanding, the profitable returns on foreign investment in T-bills may mostly be attributed to the nation’s high-interest rate environment. Pakistan’s high local debt yields draw the attention of carry traders.

The SBP has maintained its benchmark interest rate at 22 percent since July 2023. The central bank has raised interest rates by a total of 15 percentage points since September 2021, to rein in rapidly rising inflation.

Pakistan saw net T-Bill inflows of $612 million in FY20; these inflows peaked in January 2020, when net monthly inflows of $1.4 billion were recorded.Hot money is expected to keep flowing into Pakistan, according to analysts, supporting the country’s forex reserves.

“We think once Pakistan gets the new long-term IMF deal, chances are high that more such funds will come to Pakistan to get high-yielding government papers thereby providing short-term support to Pakistan FX reserves and Rupee,” said Topline Securities in a note.Beyond this optimism, the question of whether the hot money will continue to rise in the face of predictions of monetary easing starting in June still needs to be answered.