Foreign Investment: Gulf Tensions Trigger Bahrain’s Exit from Pakistan Bonds
State Bank data shows no fresh investment from Gulf countries in the first 10 days of FY2026-27 as Bahrain withdraws $30 million from Pakistan’s domestic bonds.
The State Bank of Pakistan monitors foreign investment flows amid regional tensions.
KARACHI: Foreign Investment in Pakistan weakened at the start of the 2026-27 fiscal year as geopolitical tensions in the Gulf discouraged new inflows and prompted Bahrain to withdraw $30 million from Pakistan’s domestic bond market.
The State Bank of Pakistan (SBP) reported on Thursday that the domestic market received no fresh investment from Gulf countries during the first 10 days of the new fiscal year. The central bank recorded only a $4 million investment from Luxembourg in treasury bills, which currently offer returns of up to 11.5 per cent.
Analysts linked the slowdown to the ongoing conflict involving Iran, the United States and Israel. They said rising regional uncertainty has increased investor caution, pushed up global oil prices and weakened confidence in emerging markets, including Pakistan.
The latest SBP data showed a net outflow of $30 million from Pakistan’s domestic bonds. Bahrain accounted for the entire withdrawal by pulling $21 million from treasury bills and $9 million from Pakistan Investment Bonds (PIBs).
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Market observers noted that Bahrain remains particularly sensitive to regional tensions because the country hosts a major US military presence and faces potential security risks linked to the conflict.
The regional crisis has also reduced Pakistan’s ability to attract fresh investment from Middle Eastern countries. During the recent period of heightened tensions, the United Arab Emirates withdrew $3.5 billion that it had placed with the State Bank. Saudi Arabia later replaced those funds, helping Pakistan avoid pressure on its current account.
Pakistan’s domestic bond market also struggled throughout the previous fiscal year. Official figures show that domestic bonds recorded a net outflow exceeding $500 million during FY2025-26.
Although the conflict has not yet affected workers’ remittances from Gulf countries, currency experts warned that a prolonged crisis could eventually slow remittance flows, which remain one of Pakistan’s most important sources of foreign exchange.
An exporter said growing uncertainty has continued to weigh on business confidence since the conflict escalated. He argued that Pakistan’s security challenges and stagnant exports have further reduced the country’s appeal to foreign investors.
He also warned that slower investment and weak export growth could keep Pakistan’s economic growth below 4 per cent, limiting job creation and putting additional pressure on the country’s economy.
