KARACHI: Pakistan’s short-term local government bonds faced outflows for the second consecutive month in April, as foreign investors turned cautious amid a sharp decline in interest rates, alongside trade tensions and geopolitical risks.
Foreigners invested $5.023 million in treasury bills until April 18 but withdrew $172.3 million, leading to a net outflow of $167.3 million, data from the State Bank of Pakistan (SBP) showed on Wednesday.
Between July 1, 2024 and April 18, 2025, investors bought $1.168 billion in T-bills and divested $1.355 billion, resulting in a net outflow of $187 million.
Saad Hanif, head of research at Ismail Iqbal Securities, said that overseas investor confidence has persistently deteriorated, with net outflows from T-bills reaching $197.4 million in March 2025 and $164.9 million in April (up to the 11th), indicating sustained selling. “This sharp reversal follows strong inflows seen during mid-2024, particularly the $229.6 million peak in May,” Hanif said.
“The outflows appear driven by profit-taking, a 10 ppt [percentage points] decline in interest rates reducing T-bill appeal, concerns over rupee depreciation, and rising geopolitical uncertainties including trade war risks,” he added.
“While February saw a brief $46.9 million inflow, the return to heavy selling indicates that investor caution persists. Future flows will likely depend on currency stability, interest rate expectations, and broader macroeconomic and geopolitical developments,” he said.
Analysts warned that concerns over potential escalation between India and Pakistan are causing uncertainty and a negative impact on foreign investors’ perceptions of Pakistan’s economy. India will take military action within the next 24 to 36 hours, according to Pakistan’s Information Minister Attaullah Tarar, who also stated that Pakistan would react “assuredly and decisively”.
US President Donald Trump ordered a slate of import tariffs in early April, throwing the global economy into a state of uncertainty. Although he has temporarily halted the heaviest tariffs on nearly all trading partners, a 10 per cent blanket duty persists, with a 145 per cent tariff on China, the United States’ largest trading partner.
Pakistan’s central bank kept its benchmark interest rate unchanged at 12 per cent in March, citing risks from volatile food and energy prices and external account pressures. However, it also acknowledged a continued decline in inflation and a sufficiently positive real interest rate on a forward-looking basis.
Analysts believe that, due to the persistent disinflationary trend and sufficient real interest rate cushion, there remains potential for a measured rate cut to bolster economic recovery without jeopardising macroeconomic stability. The SBP is expected to lower the policy rate by 50 basis points to 11.5 per cent at its next policy meeting on Monday, according to analysts and markets.
T-bill yields flat ahead of monetary policy next week
The government raised Rs562 billion from the auction of market treasury bills on Wednesday, while the yields stayed flat ahead of the central bank’s interest decision next week.The amount raised was lower than the maturity amount of Rs698 billion, but it was more than the pre-auction target of Rs400 billion. The auction saw a total of Rs1.505 trillion in participation.
The cut-off yields on one-month T-bills decreased by 17 basis points (bps) to 12.1492 percent. The yields on the three-month paper remained unchanged at 12.0098 percent. However, yields for the six-month tenor fell by 1 bps to 11.9998 percent. The yields on a 12-month T-bill stayed flat at 12.01 percent.
In Pakistan’s Investment Bonds (floater) auction, the government raised Rs321 billion (competitive and non-competitive) against a participation of Rs1.537 trillion and a target of Rs150 billion.
In addition, the government raised Rs105.23 billion from the sale of Ijarah Sukuk at the Pakistan Stock Exchange (PSX).
Analysts expect the State Bank of Pakistan (SBP) to cut interest rates by 50-100 basis points at its upcoming policy meeting on Monday.“We expect SBP to resume monetary easing, driven by elevated real interest rates, a two-decade-high current account surplus, and approval of funds by the IMF amid sluggish economic activity,” said AKD Securities Limited in a note.
“Inflation is estimated to ease to 0.6 per cent year-on-year in April, a six-decade low, from 0.7 per cent YoY in the previous month on the back of a drop in food, transport, and housing indices,” it added.
“We expect the MPC [Monetary Policy Committee] to cut interest rates by 100 bps to 11 per cent, followed by an additional 150 basis points easing in the remainder of CY25.”