Gulf inflows in domestic bonds

Karachi, Pakistan witnessed a surge in foreign investment in the country's domestic bonds, with $188 million flowing into these securities within the first nine days of October. This development highlights the growing interest from overseas investors and presents an additional avenue for the government to generate dollar inflows.

State Bank of Pakistan data revealed that Gulf countries, in particular, demonstrated a keen interest in domestic bonds, especially long-term Pakistan Investment Bonds (PIBs). Treasury bills attracted $78 million, while PIBs garnered $110 million during this period. Pakistan has long been striving to attract more foreign investment in government securities; however, prior inflows were limited to short-term instruments and were relatively modest.

The newfound trend could serve as an alternate source of foreign exchange for the nation, which previously enjoyed record remittances of $41.5 billion in the fiscal year 2026. Nonetheless, weak export growth has resulted in a widening trade deficit and has made it more challenging to maintain a surplus in the current account. Foreign investment outflows during the same nine-day span amounted to $38.16 million, which is significantly lower than the $188 million inflow.

The data breakdown indicated that the United Arab Emirates led the investment, depositing $50 million in T-bills and $80 million in PIBs. Bahrain, on the other hand, invested $30 million in PIBs and $10 million in T-bills. Since the inception of the current fiscal year, the total foreign investment in domestic government securities has reached $656 million, comprising $404 million in PIBs and $252 million in T-bills.

Financial experts, however, presented differing opinions regarding the surging inflows, particularly from Gulf countries. Some conjectured that individuals from Pakistan residing and conducting business in the Gulf might be reallocating a portion of their liquid assets to Pakistan by investing in high-yield and low-risk government securities.

Conversely, others argued that returns on T-bills and PIBs had become increasingly appealing due to regional economic uncertainty stemming from the ongoing war.