Political turmoil driving away foreign investors

KARACHI: An ongoing political crisis at home is putting pressure on the external economic front, as foreign investment outflows from equity, treasury bills and Pakistan Investment Bonds (PIBs) have sharply increased during the ongoing month.

Of the combined outflows of around $1.5bn during the ongoing fiscal year so far, as much as $400 million has flown out of the country during March alone, State Bank data showed on Saturday.

PIBs have been the hardest hit — outflows during the first 14 days of March stood at $102m, which then skyrocketed 147pc to $251.5m within the next 10 days.

Such massive outflows were also witnessed in March 2020 — a month after the first Covid-19 case appeared in Pakistan — when the foreign investment of about $3.5bn left the country within a few months.

PIB outflows have jumped 150pc over the last 10 days

At present, major foreign investments outflows are from PIBs despite high yields — returns on these bonds have increased to 11.85 per cent for the three-year tenor, 11.75pc for five years and 11.74pc for 10 years.

Similarly, yields on treasury bills rose to 11.99pc for three-month papers, 12.5pc for six months and 12.7pc for 12 months.

Money market dealers believe that returns on treasury bills and PIBs are highly attractive for foreign investors, as nowhere such high rates are available on government-guaranteed, risk-free bonds.

During the current fiscal year so far, the total PIB inflows stood at $104.3m. Inflows have so far remained just $0.15m during this month.

While inflows in treasury bills have remained zero this month, outflows have reached $100.4m, showing fast-eroding foreign investment from domestic bonds.

The total inflows of PIBs and treasury bills during March stand at $0.15m, while outflows of the two domestic bonds are $352m. If outflows from equity is counted, the total outflows of foreign investment were $402.35m, while the cumulative net flow was $378.3m. Inflows in equity during March stands at $23.9m.

“There is no economic reason for these outflows since the government is not facing any serious trouble on the economic front, which, in fact, is in a better position due to higher exports, increased remittances and reasonable foreign exchange reserves held by the State Bank,” said S.S. Iqbal, a money dealer in the banking system.

“The rapid outflows could be an outcome of the political crisis in the country and it may become worse,” he said.

The single-day outflow on March 24 was $91.3 million against an inflow of $2.3m in equity. The outflows from PIBs and treasury bills were $50m and $34.8m, respectively, during the same day.

During the ongoing fiscal year, the total outflows from equity, PIBs and treasury bills stand at $1.558bn against total inflows of $654.3m. So, the cumulative net flow during the nine months through March comes in at $904.36m.

The government and the central bank have launched the bonds two years back to attract foreign investors and the efforts continue to this day, as visible from the high returns on both bonds.

However, the emergence of one crisis after another has never allowed foreign investors to stay for longer periods despite risk-free, high-yielding domestic bonds.