ISLAMABAD: Pakistan witnessed a reversal in foreign investment trends in its short-term local government bonds in December 2025, recording net inflows of $20 million, a notable turnaround from $42.2 million in outflows in November, according to State Bank of Pakistan (SBP) data. Foreign investors poured $77.29 million into treasury bills during the month, although $57.27 million was divested, resulting in the net positive inflow.
The inflow followed SBP’s unexpected 50 basis points cut in its benchmark interest rate to 10.5% in December, after keeping rates at 11% for four consecutive meetings. The Monetary Policy Committee (MPC) last reduced rates in May 2025, bringing the total reduction since June 2024 to 1,150 basis points from 22%.
A report by Ismail Iqbal Securities highlighted that Pakistan’s sovereign narrative has shifted over the last two years from default concerns to gradually restoring market confidence. Rating upgrades by Moody’s and Fitch reflect improved policy discipline, strengthened external buffers, better liquidity management, and progress under Pakistan’s IMF program.
The report also noted a sharp rally in Pakistan’s Eurobonds, indicating a reassessment of sovereign risk supported by higher reserves, a narrowing current account deficit, and repayment of select short-term liabilities. Analysts observed that foreign investment in T-bills was volatile throughout 2025, with outflows in the first half due to geopolitical uncertainties and more attractive yields abroad. Reduced interest rates also dampened foreign demand for local bills and bonds earlier in the year.
In the second half of 2025, however, investment flows began to stabilize, culminating in December’s rebound, signaling renewed interest as Pakistan’s risk premium decreased and policy continuity strengthened.
Looking ahead, Pakistan plans to re-enter international capital markets, including a potential Panda bond issuance in 2026, followed by Eurobond and Global Sukuk offerings by FY27. These steps reflect improved policy credibility and funding flexibility, marking a shift from crisis-driven pricing toward a more stable and investable sovereign outlook.
The December inflows underscore growing investor confidence in Pakistan’s monetary and fiscal management, as the country positions itself for sustainable access to global capital markets.
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