Foreign investment in Pakistani government debt securities, including treasury bills (T-bills) and Pakistan Investment Bonds (PIBs), is gaining momentum, fueled by attractive returns and a stable rupee-dollar exchange rate. In May alone, net investment reached $35.6 million, bringing the total inflows to $192 million in the first five months of 2024. These investments have played a crucial role in maintaining the country’s foreign exchange reserves above $9 billion.
Topline Securities CEO Mohammed Sohail attributed the influx of portfolio investment to Pakistan’s high interest rates and currency stability. He anticipates that the country may attract more funds, particularly after securing a new IMF loan deal, which could provide short-term support to foreign exchange reserves and the rupee.
Despite recent fluctuations, the government offers competitive returns, ranging from 20-21% on rupee-denominated T-bills. This attractive yield persists as the central bank maintains its policy rate at a record high, coupled with a stable rupee-dollar exchange rate.
While there is speculation about a potential rate cut in the upcoming monetary policy meeting, experts believe any reduction will be modest, keeping T-bill returns relatively high. The rate cut is expected to be marginal until deeper cuts are implemented over the next year or so.
Additionally, there are forecasts of a gradual depreciation of the rupee to meet IMF conditions, although stability is anticipated until the end of June. The Karachi Inter Bank Offered Rate (KIBOR), which decreased following a decline in T-bill yields, suggests market expectations of a rate cut by the central bank in June.
In summary, foreign investment in Pakistani government debt reflects investor confidence in the country’s economic prospects, driven by attractive returns and currency stability. Despite uncertainties, Pakistan remains an appealing destination for portfolio investors seeking higher yields amidst global economic challenges.
