T-Bills Lose Appeal as Foreign Investors Pull Out

Foreign investors are pulling out of Pakistan’s T-bills, making July a difficult opening month for FY26. Weak inflows and significant sell-offs underscored the declining appeal of government treasury bills despite ongoing claims of economic stability.

Fresh data from the State Bank of Pakistan (SBP) revealed that almost all inflows during July came from the United Kingdom, but outflows also originated there. The UAE saw no new investments and recorded additional withdrawals, reflecting the limited scope of foreign participation in the debt market.

Analysts believe the sell-off shows that investor confidence in Pakistan’s financial climate remains weak. A senior banker noted that with the policy rate halved to 11 percent in just one year, further cuts remain likely, which would reduce T-bill returns even more. “At this rate of return, T-bills are no longer attractive,” he said.

Falling Yields Undercut T-Bills’ Appeal

T-bills once served as a favored short-term option for foreign portfolio investors, but yields have dropped sharply. The most recent auction held on August 8 offered rates of 10.85 percent, 10.87 percent, and 11 percent on three-, six-, and 12-month papers, far below double-digit levels recorded earlier in FY25.

Bankers stressed that the decline in yields is the main reason behind the July withdrawals and the hesitation of new investors. “Pakistan will find it difficult to secure portfolio inflows with such low returns,” one remarked.

The weakness follows a disappointing FY25 when foreign inflows fell short of expectations. Foreign direct investment (FDI) reached $2.4 billion, only a 4.7 percent increase from the previous year, concentrated in limited sectors. Portfolio inflows, meanwhile, remained negligible.

Analysts Doubt Pace of Promised Investment

Officials continue to promote privatisation plans and mineral sector opportunities, but market watchers remain cautious about their timing and scale. A researcher said it is unclear how long investors will take to turn interest into actual investment.

Experts now argue that T-bills cannot be relied upon to attract foreign funds in the near term. Instead, they suggest the government should prioritize strengthening remittances, which remain Pakistan’s most dependable foreign exchange source.

The State Bank has set a $40 billion remittance target for FY26. However, bankers and currency dealers are skeptical after the government scaled back incentives for banks and exchange companies, dampening expectations.

With portfolio flows slipping into negative territory and FDI struggling to gain momentum, economists warn that Pakistan may again have to depend on remittances and external borrowings to manage its financing needs this fiscal year.