KARACHI – Pakistan is facing a worrying trend as foreign investors continue to pull money out of domestic government bonds. In the first two months of the current fiscal year, net outflows from treasury bills reached $73 million, significantly outpacing inflows of just $44 million. Analysts attribute this capital flight to the recent sharp cut in interest rates, which have dropped to 11%, slashing the returns on T-bills and reducing their appeal to global investors. The uncertainty is compounded by global currency volatility, especially the weakening of the US dollar, which is influencing investment decisions worldwide.
The outflows were led by the UK, which recorded $52.5 million in withdrawals against inflows of only $13 million. Similar trends were observed in the US, UAE, and Bahrain. Meanwhile, the government’s reliance on remittances — which hit a record $38.3 billion in FY25 — is now under threat due to a reduction in costly incentives that previously encouraged inflows. These incentives cost the government Rs124 billion this fiscal year, sparking criticism and warnings from the banking sector. While August remittances held steady at $3.2 billion, the long-term sustainability of this support is uncertain, placing further pressure on economic stability.
