Foreign investors offloaded government treasury bills (T-bills) worth $49 million in July, the first month of FY26, while fresh inflows were limited to just $13 million, signaling continued weakness in investor confidence despite signs of macroeconomic stability.
Data from the State Bank of Pakistan shows that nearly all of the inflows originated from the United Kingdom ($13.07 million), while most outflows also came from there ($43.7 million). The UAE recorded no fresh inflows but saw outflows of $5.1 million, highlighting the limited scope of foreign participation.
Analysts said the sell-off underscores persistent scepticism about Pakistan’s investment climate. “Within a year, the policy rate has halved to 11pc. There is still room for further cuts, which means T-bill returns may fall even lower — it’s a lost case,” a senior banker remarked.
T-bills have traditionally served as a short-term instrument for foreign portfolio investors, but their appeal has waned alongside falling interest rates. In the latest auction on August 8, yields stood at 10.85pc, 10.87pc, and 11pc on three-, six-, and 12-month papers, respectively, compared to higher double-digit returns in FY25.
Bankers said the decline in yields has been a key reason behind both the July outflows and the reluctance of new investors to enter the market. “At this rate of return, Pakistan will find it hard to draw portfolio inflows,” one said.
The retreat follows a disappointing FY25 for foreign inflows. Despite repeated government assurances, Pakistan secured only $2.4 billion in foreign direct investment (FDI), a modest 4.7pc rise from the previous year, concentrated in a few sectors, while portfolio flows remained negligible.
Officials continue to promote privatisation and mineral resource projects in Balochistan and Khyber Pakhtunkhwa, but analysts remain unconvinced about the pace and timing of such investment. “It is still uncertain how long potential investors will take to materialise their commitments,” a market researcher noted.
Experts cautioned that T-bills may no longer be an effective tool to attract foreign funds in the near term, suggesting the government should focus on strengthening remittance inflows, Pakistan’s most reliable foreign exchange source.
The State Bank has set a $40 billion remittance target for FY26. However, bankers and currency dealers expressed doubts, noting that recent reductions in incentives for banks and exchange companies could dampen expectations.
With foreign portfolio flows turning negative and FDI struggling, economists warn that Pakistan may once again have to rely heavily on remittances and external borrowings to meet its financing needs in FY26.
