KARACHI: Pakistan received a record flow of foreign investment of $2.225billion in treasury bills during the first seven months of current fiscalyear apparently due to simplification of tax regime for non-residents.
The State Bank of Pakistan (SBP) said that the latest T-bills auction heldon Jan 15 yielded $537.9 million.
The latest inflow took foreign investment to over $2 billion, mostly inthree-month T-bills, which came much earlier than the expected timeline ofJune 2020 as experts had predicted that foreign inflows would be above $2billion by the end of current fiscal year 2019-20.
The government during the Jan 15 auction received Rs1.1 trillion, butraised Rs274bn in T-bills. The data issued by the State Bank released theother day showed that over 95 per cent investment in T-bills came from theUnited Kingdom and United States. Out of the total investment of $537.9million, $456.7 million came from the UK and $80.2 million from the US.
During the current fiscal year, investment from the UK stood at $1.392billion and that from the US at $758.3 million. The inflows through T-billshelped the government build its reserves which pushed the State Bankreserves to $11.568bn and the country’s total reserves to $18.123bn.
Bankers dealing in the currency market said the inflows of dollars throughT-bills had stabilised the exchange rate, which was visible during theshort spell of a war-like situation between Iran and the US; neither thedemand was high nor had its rate increased. The government used to issueanother Eurobonds to pay the previous one.
Bankers and analysts said the high foreign exchange liquidity was an addedattraction for foreign direct investment as the investors judged theability of the economy and its risks while they found it possible to takeout their investments.
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According to amendments to the Income Tax Ordinance 2001, capital gainsshall be subject to withholding tax at the rate of 10 percent and shallconstitute final discharge of tax liability. There will be no deduction of0.6 percent banking transaction tax under Section 236P on transactions inSCRA (Special Convertible Rupee Accounts) and no advance tax payment willbe required under Section 147 on capital gains, the central bank said inthe first week of January.
The benchmark interest rate is expected to be kept at higher levels in abid to put the brakes on the accelerating inflation. This will encouragemore investors from across the border to pour money into Pakistan’s debtinstruments.
Most of the investors have continued to re-invest in three-month T-bills.“Foreign investors have divested a meagre $18.44 million out of the totalof $2.25 billion invested since July 2019 to date,” according to the SBPdata.
The central bank data suggested that initially the US and the UK were theonly countries which made such investments in Pakistan as the global fundmanagers were mostly operating in the two developed countries.
Now, the fund managers from other countries, including Luxembourg, the UAE,Bahrain, Cayman Islands and Ireland have also started pouring investmentinto Pakistan, according to the SBP.
