Foreign investors placed more than $1 billion in Treasury Bills (T-bills) during the first eight months of FY25, despite a decline in returns. However, data from the State Bank of Pakistan (SBP) shows that 84% of this inflow was withdrawn during the same period.
The returns on T-bills began to fall in FY25, driven by a sharp decrease in inflation and interest rates. The SBP policy rate was reduced from 22% to 12%, and the return on T-bills followed a similar decline.Â
According to the SBP, T-bills attracted $1.147 billion in investment during July-February FY25, with month-to-month inflows remaining strong despite the falling returns. However, withdrawals were also significant during the period.
Foreign investors focused on short-term T-bills, taking advantage of the high yields, while largely avoiding longer-term investments such as Pakistan Investment Bonds.Â
Financial experts suggest that much of the capital inflow from these countries likely belongs to overseas Pakistanis, as the returns on T-bills were considerably higher than those in the UK and UAE, where the returns are in the range of 3-5%.
The UK accounted for the largest share of inflows, with $701 million, or 61% of the total, followed by $222 million from the UAE. Other notable inflows included $71 million from Bahrain and $64 million from Australia.Â
However, the UK also led in withdrawals, with $552.5 million, including both principal and profit. The UAE and Australia followed with withdrawals of $137 million and $41 million, respectively. In total, $969 million, or 84.5% of the inflows, was withdrawn during the period.
High returns had previously attracted foreign investment in government securities, but the 2019 pandemic severely impacted this trend. Since then, foreign investors have been reluctant to commit to longer-tenure investments, leading to a continued close alignment of inflows and outflows in T-bills.
