SBP plans to keep foreign investors interested for long–term

• Pakistan's central bank wants to make foreign funds stay invested for longer periods.
• The strategy in development if proven successful would help ease Pakistan economy marred with issues of high debt, weak growth and low foreign currency reserves.

Pakistan's bond market has become a profitable option for foreign investors, with sovereign bonds witnessing an unprecedented inflow of foreign money and international investors having purchased one-year bonds worth $642 million in November alone.

However, the State Bank of Pakistan (SBP), applauding the development and terming it "a manifestation of their growing confidence in the positive outlook for the economy," wants to make foreign funds stay invested for longer periods.

The strategy is to create “deeper pockets along the yield curve,” said State Bank of Pakistan Governor Reza Baqir, while talking to Bloomberg. “Having deeper segments means that these instruments become more attractive to non-residents as well because they want turnover in the secondary market.”

The strategy in development if proven successful would help ease Pakistan economy marred with issues of high debt, weak growth and low foreign currency reserves.

Pakistani bonds offer high returns, Pakistan's central bank has more than doubled its policy rate to 13.25pc – the highest in Asia – to help stabilize the economy. The foreign inflow in bonds is expected to reach a record $3 billion by the end of the fiscal year.

As per the report, Baqir wants foreign investors to pursue longer tenor instruments, and informed that the State Bank is working with the finance ministry on a strategy that includes considering bond buybacks, among other measures.

SBP on Monday highlighted the benefits provided by international investors. “First, such investment helps to deepen capital markets by increasing the pool of funds available in the local market and diversifies the investor-base. Second, such investment helps to allow banks to deploy available funds for lending to the private sector since there is growing competition from international investors for placements in government securities.

“Third, such interest by international investors raises the demand for government securities and accordingly lowers yields and reduces the cost of borrowing for the government. Fourth, the growing role of international investors in the local debt market may serve as a positive feedback mechanism for further improving domestic practices, policies, systems and institutions in line with international best practices.