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Pakistan started the new calendar year with strong foreign interest in domestic bonds, as inflows into treasury bills (T-bills) during the first 16 days of January reached $114.7 million. Outflows during the same period stood at $18.5 million, according to data released by the State Bank of Pakistan (SBP).
This marked the largest monthly inflow in over six and a half months, highlighting a preference among foreign investors for government securities over the equity market, which continued to experience net outflows. During the same period, foreign investment in equities amounted to just $17 million against $61.5 million in outflows.
FDI Declines
While T-bills attracted record inflows, foreign direct investment (FDI) in Pakistan declined sharply during the first half of fiscal year 2026, falling 43% to $808 million from $1.425 billion in the same period last year.
Overall, T-bill inflows for the first six and a half months of FY26 reached $625 million, with outflows of $408 million. In comparison, equity market inflows totaled $164 million, while outflows stood at $459 million.
Stable Exchange Rate
Financial analysts attributed the robust T-bill inflows to a stable exchange rate, which has encouraged investors to repatriate profits and capital with minimal currency risk. The largest inflows during the first 16 days of January came from Bahrain ($48 million), followed by Singapore ($28 million), the UAE ($15 million), and the UK ($13 million).
Despite a decline in T-bill rates during the last two auctions, foreign demand remained strong. On January 21, the SBP reduced yields on one-month papers by 31 basis points to 9.8%, three-month papers by 26 basis points to 9.89%, six-month papers by 22 basis points to 9.94%, and 12-month papers by 16 basis points to 10%. In the previous auction on January 8, yields were cut across all maturities by 29-34 basis points.
Macroeconomic Stability and Investment
Some experts attributed the strong inflows to perceived macroeconomic stability. Faisal Mamsa, CEO of Tresmark, said Pakistan appears stable on the surface, with declining inflation, improving foreign exchange reserves, a steady exchange rate, and the KSE-100 index approaching 190,000 points.
However, he noted that economic growth remained a concern, with the cost of doing business about 34% higher than regional peers and exports remaining stagnant.
A report by Topline Securities highlighted factors supporting economic resilience, including easing inflation, record expected remittances of $40 billion, improving reserves, and a 10% growth in large-scale manufacturing. Inflation fell to an average of 3.5%, creating room for monetary easing, while T-bill yields trended lower over the past six months.
