Qudsia Bano

The latest Pakistan Investment Bond (PIB) auction yielded a disappointing Rs16 billion, significantly below expectations. Experts cite growing investor caution and inflationary risks as key factors behind the muted response, with market participants wary of long-term exposure in an uncertain economic environment.

The government had aimed to raise a higher amount through the auction to meet its financing needs, but investors displayed reluctance, demanding higher yields to compensate for perceived risks. The cautious stance reflects ongoing concerns over inflation, interest rate volatility, and Pakistan’s broader economic trajectory. Dr Adeel Khan, a former macroeconomic analyst at the State Bank of Pakistan, explained that inflation expectations play a crucial role in determining bond demand.

“With inflation still elevated, investors hesitate to commit to long-term bonds unless they offer significantly higher returns.” Adeel noted that the central bank’s monetary policy direction remains a critical factor, as any potential rate cut in the near future could impact bond pricing. The low participation in the auction also signals broader concerns about Pakistan’s fiscal management. Investors remain wary of the country’s debt sustainability, particularly as the government continues to rely heavily on domestic borrowing.

Ali Rehman, an economic analyst at the Centre for Economic Research in Pakistan, highlighted that foreign interest in Pakistani bonds remains subdued due to credit rating challenges and economic uncertainty. He emphasised that local banks and institutional investors are also reshuffling their portfolios, preferring shorter-term instruments to hedge against economic volatility.

The subdued response to the PIB auction underscores the urgent need for economic stability and predictable policy measures to restore investor confidence. Without clear signals of fiscal discipline and inflation control, experts warn that future bond issuances may continue to face tepid demand, forcing the government to rely on costlier borrowing options.

Credit: INP-WealthPk