KARACHI: The outflow of foreign investment through treasury bills shot up to $61 million during the first nine days of this month, while the inflow was just $8.14m in the same period.

The inflows of foreign investments had increased in the last quarter of the previous fiscal year (FY24), improving the country’s investment climate, particularly for foreign investors.

According to analysts, since investors had already earned profit through higher yields, they left the country fearing a lower spread. However, others attributed the outflow to the early maturity of three-month t-bills.

July FY25 was encouraging for investment in t-bills as it rose to $271m, but the sudden drop in August was a setback for the financial market. The inflow of dollars has always been a serious concern for the country as well as the financial market.

Researchers said the prospects for approval of a $7 billion IMF loan were bright. The research head of a brokerage house said the stability of the exchange rate is still a big attraction for investors in domestic bonds.

He said the expected inflows from an IMF loan would stabilise the exchange rate, bringing in more foreign inflows in the future. Most financial experts agreed that the stability of the exchange rate was the key to foreign investment.

The total outflow of foreign investments from t-bills was $154m during FY24. The inflows into domestic bonds picked up after Covid-19 on the back of over 21 per cent return on t-bills.

This was the highest return any country can offer and the 22 per cent policy interest rate remained unchanged during the entire FY24.

CAD improves

Analysts said the recent improvement in the current account deficit (CAD) was also an encouraging sign for foreign investors. The CAD stood at a negligible $162m and could come down to virtually zero if imports are curbed and remittances go up.

The government has once again geared up efforts to stop the smuggling of goods and dollars to Afghanistan and Iran. There were reports that the grey market has re-emerged and has been attracting dollars at a higher rate.

Exchange companies believe that around $500m are sold to grey market operators every month. They fear this could destabilise the exchange rate as the grey market offers much higher rates than the bank rate.

This high grey market rate wiped off billions of dollars from the mainstream and drastically reduced the inflow of remittances in FY23.

Published in Dawn, August 21st, 2024