Foreign outflows hit $1.65bn; net investment falls to Dec-19 level

KARACHI: Total gross divestment during March 2020 has reached $1.654 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 $75 million of treasury bills (T-bills) on March 27, as per the Special Convertible Rupee Account (SCRA), which tracks inflows and outflows from foreign countries. During the week ending March 27, foreingn investors divested a combined total of $263 million.

The net investment in T-bills from July 2019 to date now amounts to $1.445 billion. This means that for the first time, the net investment in T-bills has just fallen to less than the December 2019 cumulative figure of $1.450 billion.

The month of March has seen a significant amount of money leave the country. In the week prior, foreign investors 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 first began in late February, as foreign investors divested $67 million of T-bills on February 28. Several analysts have said that the lower policy rate resulted in hot money leaving the economy.

On March 24, 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 a week prior, on March 17, when the SBP cut the policy rate from 13.25pc to 12pc.

However, in the monetary policy announcement, 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.

 

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Meiryum Ali
The author is a member of the staff and can be reached at [email protected]
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