War with India fails to stop inflows in T-bills

KARACHI: The Indian aggression against Pakistan has not hurt, strangely enough, the inflow of foreign investment into treasury bills, while outflows from the equity market has been much higher than inflows during the same period.

The State Bank’s latest update for May shows that foreign inflows in T-bills during the month (up to May 23 of FY25) reached $73.6 million. This was strange since India attacked Pakistan on May 6. It is believed that foreign investment quickly leaves a country during an international crisis.

The war did not hurt inflows in t-bills, but outflows from the equity market reflected its negative impact.

The State Bank data for May shows that while inflows in T-bills were $73.5m, outflows amounted to $66m.

The highest inflow of $50 million came from UAE, while Britain received the biggest outflow of $62m

But figures for foreign investment in equity market show that during May, inflows were $38.7m and outflows totaled $64.6m.

Although the situation has remained calm in Pakistan so far despite the war, India has hurling threats of another attack. But the threats have not scared away the investors.

The highest inflow of $50m came from the UAE, while the biggest outflow of $62m went to Britain.

Since Pakistan has not been a popular choice for foreign investors for over a decade, foreign direct investment has stagnated around $2bn every year.

The Indian aggression did not, however, change the scenario.

Pakistan has been trying hard to attract foreign investments and a council has been established to persuade investors with lucrative incentives, but the result has remained insignificant so far.

The July-May period of FY25 saw an inflow of $1.247 billion through T-bills while outflows amounted to $1.447bn during the same period. The big outflow was due to declining returns on T-bills.

Since the State Bank has slashed the interest rate to 11 per cent from 22pc since June last year, the diminishing returns on T-bills has taken the shine off the instrument for investors.

The financial sector believes that overseas Pakistanis were making investment in T-bills as the instrument is secure and risk-free. The government is also borrowing through the stock exchange by selling Sukuk bonds.

The State Bank’s data shows that so far the government has borrowed Rs3.7 trillion from banks despite a hefty profit of Rs2.7tr provided by the State Bank in the beginning of the current financial year.

Borrowing through banks during July-May FY25 was, however, much lower than last year. The government had borrowed Rs7.76tr during the same period of the previous fiscal.

Published in Dawn, June 25th, 2025