Pakistan Investment Bonds (PIBs) attracted over $12.7 million foreign investment in the first week of this month following the recent increase in the cut-off yields.
The State Bank of Pakistan (SBP) data shows that the entire amount of $12.7 million invested in PIBs came from the United States. The Fed Reserve’s interest rate is at the lowest level of 0.25 percent, which could be one of the reasons for higher investment from the US.
Out of total inflows of $150.3 million in PIBs, around $104 million investments came from the United States. The government has been accumulating long-term borrowing through PIBs and increased the cut-off yields by up to 42 basis points on February 27. ------------------------------
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The cut-off yield rose to 9.41 percent for three-year PIBs, 9.9 percent for five-year, and 10.05 percent for 10-year bonds.
For the first time since the COVID-19 pandemic outbreak in March 2020, foreign investments in domestic bonds crossed the cumulative figure of $150 million.
However, this time the outflow from PIBs is almost negligible as it was just $0.3 million during the current fiscal year. The inflow in PIBs started in November 2020 and has been growing.
The latest increase in the PIBs rates increased the real interest rate, making the investment more attractive.
The foreign inflow in treasury bills continued, but the outflow is higher. During the current fiscal year, total inflows in treasury bills were $424.2 million, while the outflows were $628.2 million.
Before the pandemic, total inflows – mostly in T-bills – were $3.5 billion. However, within a few months, most of the investments returned to their origin.
The foreign inflows in the equity market continue, but the outflows are also higher. During the current fiscal year, inflows in the equity market were $398.2 million against the outflows of $711.5 million, reflecting low confidence in the fluctuating equity market. ------------------------------
Bankers said the inflow through PIBs was encouraging, though it may create problems for the next government when the bonds mature.
Pakistan has remained a high-inflation economy which offers higher interest rate and investors such as banks are earning most of their profits from government papers.
Banks and other investors have collectively invested more than $14 trillion in the PIBs. However, no data is available that could show which tenure attracted most of the investments.
Bankers noted that the three-year PIBs with 9.4 percent returns have become very attractive for foreign investors.