Key Takeaways
- Bahrain withdrew $30 million from domestic bonds in the first 10 days of FY27.
- The UAE withdrew $3.5 billion to avoid current account imbalance, replaced by Saudi Arabia.
- No foreign investment was recorded from Gulf countries during this period.
KARACHI: The ongoing conflict in the Gulf has significantly impacted Pakistan's foreign investment landscape, with key investors like Bahrain withdrawing substantial sums. According to the State Bank of Pakistan (SBP), there was no inflow of foreign investment into the domestic market during the first 10 days of the current fiscal year, which began on July 1st, 2026.
Bahrain, a major target of Iranian retaliation due to its strategic alliance with the US, withdrew $30 million from Pakistan's treasury bills and $9 million from Pakistan Investment Bonds (PIBs) within the first 10 days. This withdrawal is part of a broader trend where Gulf states are reducing their investments in Pakistan amid heightened regional tensions.
The situation has not been entirely negative for Pakistan; the UAE withdrew $3.5 billion to avoid a current account imbalance, which was promptly replaced by Saudi Arabia. However, this move does not offset the overall outflow from the region. The only foreign investment recorded during this period came from Luxembourg, with a mere $4 million in treasury bills that offer up to 11.5% returns.
The conflict has also affected Pakistan's export market, with the country facing increasing challenges due to unstable markets and rising oil prices. Exporters are particularly concerned about the potential long-term impact on remittances from Gulf countries, which currently account for a significant portion of the economy. An exporter stated: 'Uncertainty is growing day by day since the beginning of the war on February 28th. We should expect and prepare for anything that may harm our economy.'
Economic experts warn that prolonged conflict could ultimately hit remittances, which are considered the backbone of Pakistan's economy. The ongoing situation has also led to a net outflow of $30 million from domestic bonds, with no investment recorded from Gulf countries during this period.
The current economic climate is further complicated by security issues in two provinces and stagnant exports, leading to an expected economic growth rate below 4%. This scenario means that new job opportunities for the growing population will be limited. An exporter added: 'We are facing security issues in two provinces, while our exports are stagnant, which means economic growth would remain below 4pc. It also means no new jobs for newcomers in the current economic climate.'
The SBP's latest data highlights the vulnerability of Pakistan’s economy to regional conflicts and geopolitical tensions. As the conflict continues, experts predict that foreign investment will likely remain scarce, exacerbating existing economic challenges.
'Uncertainty is growing day by day since the beginning of the war on February 28th. We should expect and prepare for anything that may harm our economy.'
An exporter, Not specified
'We are facing security issues in two provinces, while our exports are stagnant, which means economic growth would remain below 4pc. It also means no new jobs for newcomers in the current economic climate.'
An exporter, Not specified
