Foreign investment in Pakistan’s treasury bills (T-bills) dropped by 87% over the past seven months as returns fell sharply. The steep decline in profit rates, coupled with concerns over debt servicing, led to significant outflows despite a stable exchange rate.
According to State Bank of Pakistan (SBP) data, foreign investors injected $984 million into T-bills between July 2024 and January 17, but withdrawals surged to $852 million in the same period.Â
The returns on T-bills, which once stood at 24%, have been halved due to a series of interest rate cuts. The SBP reduced its policy rate by 1,000 basis points, bringing it down to 12%, making T-bills less attractive to foreign investors.
The latest auction, held before the January 27 monetary policy announcement, saw further reductions in T-bill rates, with the 12-month tenor falling by 41 basis points to 11.38%. The benchmark six-month T-bill rate was also slashed by 39 basis points to 11.4%.Â
Market analysts suggest that with the potential for further rate cuts, foreign investors see limited returns in Pakistan’s debt market.
The UK led the inflows into T-bills during this period, contributing $630 million, but also accounted for the largest withdrawal at $457 million.Â
Other key investments came from the UAE ($152 million), Bahrain ($61 million), and Australia ($52 million).Â
However, the net outflow of $121.5 million by January 17 signals continued pressure on foreign investments in Pakistan’s debt market.
