Foreign investment in govt securities surpasses $711 million

Foreign investment in government securities has exceeded $711 million since the beginning of the current fiscal year as the country saw an inflow of an unprecedented level on high interest rates and exchange rate stability.

However, analysts say this reserve build-up process is choking growth.

Foreign investment in treasury bills reached a new high of $267m between November 1-12. The US, UK and the UAE have increased their portfolios of government T-bills and Pakistan

Investment Bonds. Investment from the UK clocked in at $169.5m, followed by the ($92.6m) and the UAE ($5m). Since the start of the current fiscal year, foreign investment in government securities stood at $711m.

State Bank of Pakistan (SBP) Governor Reza Baqir said foreign investors were investing in T-bills because of attractive rates and about $500-600 million worth of foreign investment has arrived in short-term government bonds. "Previously, they were investing only in foreign bonds, but it's a positive signs for the economy that foreign investors are also investing in debt securities," Baqir told media earlier this week. "The SBP's reserves are rising due to improvement in the market sentiments and falling forward-book liabilities," he added.

However, economist Ashfaque Khan said the inflows were seen as foreign portfolio investment in local equity market as well as foreign investment in the debt market.

"The SBP is concentrating on building up forex reserves on the basis of very risky inflows and that is why the SBP is unlikely to cut interest rate as asked or expected by all stakeholders," Khan said. "This build up of reserves will be at the cost of choking economic activity in the country. The growth will remain close to population growth rate as predicted by the IMF and the World Bank." Khan further said that this would have effects on job creation and poverty alleviation. "In other words, inflating reserves at the cost of growth employment and poverty is a replica of the Egyptian model," he said. "We can also call this stabilisation with inhuman face."

Faizan Ahmed, the head of research at Optimus Capital Management, said the interest in local debt securities was mainly due to domestic interest rates being favourable to investors.