Foreign investors pull net $42m from T-bills

KARACHI: The decline in interest rates has made Pakistan’s short-term local government bonds unattractive to foreign investors, resulting in a withdrawal of a net $42.2 million from treasury bills (T-bills) as of May 2.

Foreign investors invested $9.998 million in T-bills but divested $52.208 million, leading to a net outflow of $42.2 million, according to the latest data from the State Bank of Pakistan (SBP).

In April, T-bills experienced net outflows of $187.9 million, while March saw outflows of $197.4 million. Between July 1, 2024 and May 2, 2025, investors purchased $1.183 billion in T-bills but withdrew $1.433 billion, resulting in a total net outflow of $250 million.

Analysts attribute the persistent outflows of foreign investment in fixed income to the reduction in interest rates, which has diminished the appeal of T-bills. Additionally, overseas investors are concerned about the gradual depreciation of the local currency.

Earlier this month, the SBP lowered its benchmark interest rate by 100 basis points (bps) to 11 per cent. This reduction is part of a series of rate cuts that have brought the rate down from a record high of 22 per cent, with a brief hold in March. As a result, the policy rate has reached its lowest point in three years, with a total cut of 11 percentage points since June 2024.

Moreover, rising geopolitical uncertainty following a brief military conflict between India and Pakistan earlier this month has negatively impacted foreign investors’ perceptions of Pakistan’s economy. Tensions escalated after a deadly attack on tourists in Indian-occupied Kashmir in April, ultimately leading to the worst military conflict in nearly three decades between the two nuclear-armed rivals. The two countries agreed to a ceasefire on May 10.

In the second week of this month, Pakistan received the second tranche of $1.02 billion from the International Monetary Fund (IMF) as part of a $7 billion loan programme. Consequently, the central bank’s foreign exchange reserves rose to a four-month high of $11.45 billion. The IMF expects the next funding review for Pakistan to take place in the second half of 2025 and will continue discussions with Pakistani authorities to agree on terms for the budget for the 2026 fiscal year.