KARACHI: Foreign investors dumped government treasury bills (T-bills) worth $49 million in July, the first month of FY26, while fresh inflows shrank to just $13 million, exposing the continued weakness in investor appetite despite signs of macroeconomic stability.

Latest data from the State Bank of Pakistan shows that almost the entire inflow during the month came from the United Kingdom ($13.07m), while most of the outflows also originated there ($43.7m). The UAE contributed no fresh inflows but saw outflows of $5.1m, underlining the limited scope of foreign participation.

Analysts said the sell-off highlights persistent scepticism over 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 long served as a short-term instrument for foreign portfolio investors, but their attractiveness has diminished in tandem with interest rate reductions. In the latest auction held on Aug 8, yields stood at 10.85pc, 10.87pc and 11pc on three-, six- and 12-month papers respectively, compared to double-digit returns earlier in FY25.

Foreign investors pull $49m in July as falling returns curb attraction; a meagre $13m inflow was from UK

Bankers said this decline in returns was a key factor 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 comes after FY25 closed as a disappointing year for foreign inflows. Despite repeated government pledges to attract overseas investors, Pakistan secured just $2.4bn in foreign direct investment (FDI), a modest increase of 4.7pc from the preceding year. Much of this was concentrated in a handful of sectors, while portfolio flows remained negligible.

Officials in Islamabad continue to tout privatisation plans and interest in mineral resources 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 further cautioned that T-bills may no longer serve as a meaningful tool to attract foreign funds in the near term. Instead, they argue, the government should focus on strengthening remittance inflows, which remain Pakistan’s most reliable foreign exchange source.

The State Bank has set an ambitious $40bn remittance target for FY26. However, bankers and currency dealers expressed doubts, noting that the government recently scaled back incentives for banks and exchange companies, dampening expectations.

With foreign portfolio flows turning negative and FDI struggling to gain traction, economists warn that Pakistan may once again have to rely heavily on remittances and external borrowings to meet its financing needs in FY26.

Published in Dawn, August 17th, 2025