Foreign outflows approach $1.6bn

KARACHI: Total gross divestment during March 2020 has just reached $1.579 billion, according to data released by the State Bank of Pakistan (SBP), in an expected trend of foreign outflows leaving the country due to the COVID-19 outbreak.

Foreign investors divested a combined total of $93 million of treasury bills (T-bills) on March 25 and 26, as per the Special Convertible Rupee Account (SCRA), which tracks inflows and outflows from foreign countries.

The net investment in T-bills from July 2019 to date now amounts to $1.520 billion. At the rate of foreign outflows leaving the country, the net investment looks certain to fall to, or even further, than the December 2019 figure of $1.450 billion. 

The month of March has seen a significant amount of money leave the country. Foreign investors divested $95 million of T-bills on March 24, divested $92 million on March 20, divested $47 million on March 17 and $222 million on March 13.

Similarly, on March 12, foreign investors divested $166 million; on March 11, foreign investors divested $251 million net worth of T-bills, while on March 10, foreign investors divested $136 million of T-bills.

Divestment really took off in late February, as foreign investors divested $67 million of T-bills on February 28. 

What is spurring this divestment?

Several analysts have said that the policy rate resulted in hot money leaving the economy. 

On Wednesday, the State Bank of Pakistan (SBP) cut the policy rate by 150 basis points, from 12.5pc to 11pc. This follows a policy cut from just last Tuesday, where the SBP cut the policy rate from 13.25pc to 12pc. 

However, in the monetary policy announcement last Tuesday, Dr Reza Baqir said globally, because of coronavirus, there has been a general ‘flight to safety’, that was not linked to whether the SBP significantly changed its policy rate or not.

In fact, many developed countries are divesting from emerging markets due to the COVID-19 crisis, in order to have liquidity.