Pakistan witnessed a significant flight of foreign capital from its domestic debt market during the fiscal year 2024–25, with outflows from treasury bills (T-bills) surpassing $1.5 billion. June alone recorded the highest monthly withdrawal, according to data released by the State Bank of Pakistan (SBP) over the weekend.
The data revealed that outflows were 24% higher than inflows over the year. Despite improved gross inflows of $1.279 billion — higher than the previous fiscal year — rising geopolitical tensions with India sharply heightened investor risk perception, prompting foreign investors to scale back their exposure to Pakistani debt.
June sees steepest monthly withdrawal
Foreign investment in T-bills experienced a particularly sharp pullback in June 2025. Investors purchased only $24 million worth of T-bills while withdrawing $113 million — the largest monthly outflow in FY25.
Market analysts attributed this retreat to increased uncertainty following a four-day military standoff between India and Pakistan in May, which was compounded by continued hostile rhetoric from Indian political and media circles. These developments rattled investors already wary of Pakistan’s macroeconomic vulnerabilities.
“These outflows suggest that short-term foreign investors are becoming increasingly risk-averse when it comes to Pakistan,” said a senior economist based in Karachi. “Geopolitical instability is a key driver, but persistent structural issues like low productivity and an overreliance on remittances are also weighing on investor confidence.”
Country-Wise breakdown: UK leads withdrawals
A closer look at country-specific data shows the United Kingdom leading the capital outflow from T-bills. British investors withdrew $924 million compared to inflows of $750 million. The United Arab Emirates followed with $256 million in outflows against $277 million in inflows.
The United States showed the most lopsided trend, with just $26 million invested in T-bills and a striking $186 million withdrawn — underscoring the level of concern among American investors.
Equity market mirrors bond selloff
Pakistan’s equity market also experienced significant foreign outflows, reflecting its vulnerability to political and regional instability. During FY25, foreign portfolio investment in equities totaled $460 million, while outflows reached $815 million — nearly double the inflows.
Outflows from the United States amounted to $303 million, followed by $193 million from the UK and $105 million from the UAE.
Analysts said Middle East tensions further accelerated the outflow trend across all sectors, as investors increasingly sought safer assets or exited the market entirely.
With capital outflows on the rise and foreign direct investment lagging, economic managers may be forced to reassess Pakistan’s risk profile and introduce confidence-building measures for foreign investors. Stabilizing geopolitical relations and signaling strong policy continuity will likely be critical to restoring investor trust in both bond and equity markets.
Experts suggest that without addressing structural economic weaknesses and persistent political uncertainty, Pakistan may continue to face pressure on its financial markets — despite the cushion provided by worker remittances and donor support.
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