KARACHI: Trading activity in domestic bonds suddenly increased in the first 70 days of 2026-27, with foreign investment, particularly from the United Arab Emirates, reaching its highest level in this period.
While financial experts were calculating the negative impact of the Gulf war on foreign investment in Pakistan, investment in domestic bonds reached $275 million during the first 70 days of FY27. For the first time after a long period, foreign investors chose long-term Pakistan Investment Bonds (PIBs), despite the risks emanating from the regional war.
The latest data released by the State Bank shows that foreign investors invested $151.4m in Treasury Bills and $123.7m in PIBs from July 1 to Sept 11, bringing the collective investment to $275m.
Iran has been the most affected country in the Gulf war, while the UAE was the second-worst affected nation. However, the UAE invested the highest amount in Pakistani bonds. Inflows from the UAE into T-bills amounted to $10m, while PIBs attracted $90m.
Investments in the UAE, particularly in Dubai, have dried up due to the war. Financial experts said Pakistani domestic bonds were highly attractive for investors in the UAE as the bonds were considered risk-free and offered high yields of around 12 per cent. They said those living in the UAE with liquidity had no option for further investment in that country, meaning the liquidity needed to find an attractive destination and Pakistan was among them.
Similarly, Bahrain, another war-affected country in the Gulf, invested $30m in T-bills during this period. The country has been a regular investor in domestic bonds, but the amount has increased in this short span of time.
The second-biggest investor in domestic bonds was the UK, which invested $60.7m in T-bills; the country did not invest in PIBs.
The United States invested in both PIBs and T-bills, with $8.6m and $23m, respectively. Another significant investor was Luxembourg, which invested $19.4m in T-bills and $25m in PIBs.
In the first 11 days of September, PIBs attracted $49.7m compared to $12m in T-bills. The foreign investment trend appears to have changed in the current fiscal year despite the full-fledged war in the neighbourhood.
Foreign direct investment (FDI) in August this year jumped by 80 per cent to $316m compared to $175m during the same month last year. In the first two months of the current fiscal year, FDI increased by 24pc to $494.5m from $398.6m in the same period of the last fiscal year.
Experts said the regional situation had changed and the inflows of foreign investment were not sustainable; the investments were not long-term but mostly for “quick earning and safe exit”.
Published in Dawn, September 22nd, 2026