Foreign investors have withdrawn a significant $36.58 million from Pakistan’s Treasury Bills (T-bills) during the week ending November 22, 2024, according to data released by the State Bank of Pakistan (SBP). This marks one of the largest weekly outflows from T-bills in recent months, underscoring waning foreign interest in Pakistan’s debt market.
The exodus is attributed to a sharp decline in the yields offered on government securities. In the most recent auction, the cut-off yield on three-month T-bills dropped to 12.9974%, its lowest point since April 2022. Similarly, yields on six-month and twelve-month T-bills fell to 12.8948% and 12.3500%, respectively, levels not seen since March 2022. This reduction in yields diminishes the appeal of Pakistani T-bills, especially when compared to more attractive and stable rates in other emerging markets or developed economies.
Analysts suggest that the yield cuts reflect the government’s strategy to reduce borrowing costs amid improving inflation data and a stronger rupee. However, this move has made short-term securities less appealing to foreign investors seeking higher returns, especially in a global environment where central banks in developed markets, such as the U.S. Federal Reserve, continue to offer comparatively better yields on risk-free assets.
With this recent withdrawal, the total net outflow from T-bills for the first 22 days of November has ballooned to $58.04 million, a stark reversal from the inflows seen earlier this year.
The trend of declining foreign investment in T-bills raises concerns over the sustainability of government debt financing and highlights the need for structural reforms to restore investor confidence. Market participants will closely monitor upcoming auctions and any policy signals from the SBP, which may need to recalibrate its strategy to retain foreign interest in the domestic debt market.
