Gulf war triggers investment outflow from Pakistan

KARACHI: The ongoing war in the Gulf has further reduced foreign investment in Pakistan, with Bahrain withdrawing its investments from domestic bonds within the first 10 days of the current fiscal year. The State Bank reported on Thursday that there was no inflow of foreign investment into the domestic market during the first 10 days of 2026-27, particularly from the Gulf states. The renewed US-Israeli war on Iran has not only pushed up oil prices but also left countries like Pakistan facing increasing trouble, as neither foreign investment is coming from the region nor is the market stable for exports. Only a $4 million inflow was noted from Luxembourg in the treasury bills, which pay the highest returns, up to 11.5 per cent, in developing countries. Bahrain withdraws $30m from bonds in first 10 days of FY27 However, the conflict closed off an option for Pakistan to receive inflows from the Middle Eastern countries. As a result, the UAE immediately withdrew $3.5bn held in the State Bank of Pakistan’s account; Saudi Arabia replaced this amount to help Islamabad avoid a current account imbalance. The latest data showed a net outflow of $30m from domestic bonds, with no investment recorded from the Gulf countries. The only withdrawal came from Bahrain, one of the main targets of Iranian retaliation, as the US maintains a significant military presence there. Bahrain withdrew $21m from the T-bills and $9m from Pakistan Investment Bonds (PIBs). In FY26, domestic bonds recorded a net outflow of over half a billion dollars. The ongoing conflict has not affected remittances from the Gulf countries, but currency experts fear that a prolonged conflict would ultimately hit remittances, which are considered the backbone of the economy. “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,” said an exporter who believes that foreign investment will not come, as both the internal and external situations are not suitable. “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,” he said. Published in Dawn, July 17th, 2026