Gulf war triggers investment outflow from Pakistan

The escalating conflict in the Gulf has significantly impacted Pakistan's foreign investment, leading to a withdrawal of funds by countries like Bahrain from domestic bonds within the first ten days of the current fiscal year. Data from the State Bank revealed no foreign investment inflow into Pakistan's domestic market during this period, with the exception of a modest $4 million from Luxembourg into treasury bills.

The renewed US-Israeli war on Iran has not only driven up oil prices but also created instability for Pakistan. This instability deters foreign investment from the region and affects the market conditions for exports. The conflict has closed off a potential source of financial inflows from Middle Eastern countries. Notably, the UAE had previously withdrawn $3.5 billion from the State Bank of Pakistan's accounts, a move offset by Saudi Arabia to prevent a current account imbalance.

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Uncertainty is growing day by day since the beginning of the war on Feb 28. We should expect and prepare for anything that may harm our economy.

Recent data indicates a net outflow of $30 million from domestic bonds, with no new investments recorded from Gulf nations. Bahrain alone withdrew $21 million from T-bills and $9 million from Pakistan Investment Bonds (PIBs). This follows a trend from the previous fiscal year, FY26, which saw a net outflow of over half a billion dollars from domestic bonds.

While remittances from Gulf countries have not yet been affected, currency experts express concern that a protracted conflict could eventually harm these crucial inflows, which form the backbone of Pakistan's economy. An exporter noted the growing uncertainty since the war began on February 28, warning that both internal security issues and stagnant exports create an unfavorable economic climate, likely keeping economic growth below 4% and hindering job creation for new entrants.

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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.