Pakistan sees sharp foreign outflows as global risk aversion rises

Foreign investors pulled millions of dollars from Pakistan’s domestic debt market in early March, reflecting rising global risk aversion after the outbreak of hostilities in the Gulf, according to data released by the central bank.

Figures from the State Bank of Pakistan show that a staggering $20 million exited domestic bonds in a single day on March 13, underscoring how quickly sentiment shifted amid geopolitical uncertainty.

Overall, Pakistan recorded a net outflow of $184.3 million during the first 13 days of March, with inflows of just $19.3 million failing to offset withdrawals. Analysts say the pace of outflows mirrors trends seen during the early days of the COVID-19 pandemic, when global markets saw sharp capital flight.

The latest data indicates that the United Kingdom led withdrawals with $69.5 million, followed by Bahrain at $33.7 million. Other notable outflows included the United States ($27.3 million), Singapore ($27.5 million), the UAE ($15.4 million) and Australia ($9 million).

In contrast, inflows were limited to just two sources: $9.2 million from the UK and $10 million from Bahrain.

Market pressure despite limited direct exposure

Although Pakistan is not directly involved in the Gulf conflict, analysts say the country remains vulnerable to shifts in global investor sentiment.

“Pakistan is being impacted as part of a broader emerging market risk-off trend,” said an independent financial analyst based in Karachi. “When geopolitical tensions rise, investors typically move funds to safer assets, regardless of whether a country is directly involved.”

So far, Pakistan has avoided major shocks to oil prices and currency stability, even as regional currencies have come under pressure. However, analysts warn that a prolonged conflict could change that outlook.

Broader capital market trend

The outflows are part of a longer trend of foreign investor exit.

Data shows that over the past eight and a half months: equity markets saw outflows of $724 million, treasury bills lost $751 million and Pakistan Investment Bonds (PIBs) recorded outflows of $39.8 million.

Overall, the capital market experienced a net outflow of $339 million during this period.

Comparison with pandemic-era outflows

The scale of recent withdrawals is notable when compared to 2020, when Pakistan lost between $3.5 billion and $4 billion in foreign investment within months following the COVID-19-induced global shutdown.

“The similarity in pace is concerning,” the analyst added. “While the absolute numbers are smaller so far, the speed of outflows suggests investors remain highly sensitive to external shocks.”

Analysts caution that much will depend on how long the Gulf tensions persist.

“If the conflict is contained, flows could stabilize,” the analyst said. “But a prolonged escalation could trigger further outflows, put pressure on reserves and complicate Pakistan’s external financing position.”