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Foreign investment in government securities increases

Foreigners are once again seen gradually increasing investments in the government debt securities and Pakistan Investment Bonds as the rate of profit on the securities increases, the rupee is stabilizing, and Islamabad is resuming the International Monetary Fund’s (IMF) loan program soon.

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Foreign investment in government debt securities such as T-bills and Pakistan Investment Bonds (PIBs) is gradually increasing due to an increase in the rate of return of securities, return of stability in rupee-dollar parity, and hopes of Pakistan resuming the International Monetary Fund’s (IMF) loan program in the coming months.

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According to a report on Thursday, although the volume of net foreign investment in the securities stood nominal at $17 million in the first 20 days of the ongoing month of March, the number suggests increasing return of foreign direct investment into Pakistan’s debt-ridden market.

Similarly, during the past nine months 9MFY21 the net divestment has reduced to $83 million as compared to net divestment worth $162 million in 7MFY21 from July 2020 to March 2021.

According to the State Bank of Pakistan (SBP), during 5MFY21 the net divestment was $266 million.

Government securities had witnessed an aggressive investment of over $3.5 billion from July 2019 following the IMF bailout package worth $6 billion, until February 2020 when the Covid-19 pandemic reached Pakistan, delivering a hit to the value of the rupee against the dollar.

During the March to June period, there was an aggressive outflow of over $3 billion. However, after quite a long time, the situation has turned to favor Pakistan as suggested by the numbers in the 20 days of the current month.

According to the reports, the investors have partly invested more in long-term securities such as PIBs, which was not the case in the 7MFY20.

It may be noted here that the rate of profit on three-year PIBs has increased to 9.31 percent on March 22 compared to 7.53pc at the end of June 2020 in the secondary market. Similarly, the rate of profit on five-year PIB surged to 9.84pc compared to 8.11pc at end of June 2020.

The rupee has maintained a year-high exchange against the US dollar at Rs155.85 on Monday, up from an all-time low of Rs168.43 on 26th August last year.

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Similarly, the rate of return on three to 12-month T-bills and other longer tenure PIBs have jumped sharply in recent months whereas the profit rates have also surged on the securities in the secondary market despite the real interest rate remaining negative as the central bank wanted to support economic growth during the ongoing pandemic.

 

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