Pakistan’s economy is getting hot for international debt portfolio investors. There are some inflows by foreigners under SCRA in the government treasury bills. In March and April so far, the net inflows are at $110 million and FY24 year to date at $152 million.

“it’s a good thing. This means the investors are seeing stability and yield. I think $2-3 billion should come in under the head”, excitingly said a treasury head of a bank. However, another market participant was skeptical, as he thinks it’s an expensive borrowing where the borrower has less control.

The debate on hot money was similar in 2019-20 when under Reza Baqir, SBP attracted over $3 billion in T-Bills before the party was disrupted by COVID-related economic easing. Now, the investors are perhaps welcoming Aurangzeb and the new government.

There is no doubt that the rates are attractive, but that was the case last year as well. For example, PKR/USD was in the 280s last April, and interest rates peaked around July. Had anyone invested in T-Bills back, it would have yielded 23-25 percent in dollar terms.

However, no one dared to invest. There was heightened risk in the currency and investors shied away. Now, they perhaps think the currency won’t collapse, as it was feared last year. And it’s the best time to invest before the interest rates come down.

The monetary policy is due on Monday. The only view in the market is of interest rates coming down. The only question is when does the reversal begin. Hence, if foreign investors see relative stability in PKR, it’s high time for them to build portfolios in T-bills. That may entice SBP to delay the easing cycle – and even if there is a cut, it could be moderate.

The finance minister wants to diversify external financing, and attracting hot money is one avenue. It is good, as the money is also coming into the stock market. The key for SBP is to build foreign exchange reserves. The higher the reserves, the better the stability. And till the time ratings are improved and the government knocks on long-term capital market flows (such as Euro Bonds), it is not bad to have hot money as a short-gap solution.