Pakistan’s foreign investment environment faced further deterioration in November, with a significant spike in treasury bill outflows underscoring rising uncertainty among global investors. The pattern mirrors a broader decline already visible in foreign direct investment, contributing to a challenging outlook for the second half of the fiscal year.
State Bank data shows that November was the weakest month so far in FY26 for both inflows and outflows in short-term government securities. Foreign inflows into treasury bills amounted to only 77 million dollars, while outflows climbed to 119 million dollars, marking a 54 percent increase. The outflows were largely directed to Arab countries, despite earlier commitments from regional partners that they would expand investment in Pakistan. The reversal has added pressure to a government attempting to rebuild confidence across multiple sectors.
The government has been relying on bodies such as the Special Investment Facilitation Council to create a more attractive environment for foreign investors. However, the council has yet to secure large-scale commitments, and the country’s investment authorities remain unable to deliver major breakthroughs. Analysts note that administrative incentives alone have not been enough to offset the broader risks associated with Pakistan’s political, security and regional climate.
During the month, the United Kingdom emerged as the largest source of inflows with 37 million dollars, followed by the United Arab Emirates at 20 million dollars and Bahrain at 19 million dollars. However, these same countries also led the outflow table. The UAE registered 51 million dollars in outflows, Bahrain 41 million dollars, and the UK 27 million dollars, indicating that investors are entering and exiting positions quickly, likely to capture Pakistan’s high short-term yields of around 11 percent.
Despite the elevated returns, the broader investment environment remains weak. Continued security issues in two provinces, coupled with strained relations with India and Afghanistan, have lowered confidence. This has directly contributed to a decline in foreign direct investment, which dropped 26 percent in the first four months of the fiscal year, placing Pakistan among the region’s lowest performers.
The trend of inflows still marginally exceeding outflows in the first five months of FY26 has provided limited relief. Total T-bill inflows reached 410 million dollars compared to outflows of 333 million dollars over the period. Yet market observers remain cautious, noting that the balance could easily shift further if external conditions worsen.
Looking ahead, the government is turning its attention to asset sales, including the divestment of Pakistan International Airlines and other major holdings, in hopes of generating foreign currency. However, industry watchers expect most bidders to be domestic groups with strong industrial reach, reducing the likelihood of significant foreign capital entering the market in the short term. Although Pakistan has signed multiple agreements and memoranda with countries including Saudi Arabia and the UAE, stakeholders remain unconvinced that these arrangements will translate into meaningful investment soon.
In addition to the investment challenges, the government raised 1.2 trillion rupees through the latest auction of Market Treasury Bills and Pakistan Investment Bonds. The auction attracted substantial liquidity, with bids for T-bills reaching 1.925 trillion rupees and PIB bids totalling 523 billion rupees. Analysts view this oversupply of liquidity as an indication of low private-sector borrowing and muted economic activity, a condition that has persisted for the past three years.
The investment climate is therefore expected to remain under pressure as Pakistan navigates weak inflows, heightened outflows, economic slowdown and persistent security challenges.
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