Pakistan’s foreign investment saw a significant decline, dropping by 19% to $1.3 billion during the first nine months of Fiscal Year 2025, according to the State Bank of Pakistan (SBP). Analysts point to political instability and challenges in the business environment as major contributors to this slump.
Interestingly, foreign direct investment (FDI) rose by 14%, reaching $1.64 billion during the same period. However, this growth was overshadowed by a dramatic 514% reduction in foreign portfolio investments (FPI), where international investors sold $269 million worth of Pakistani equities and debt. Comparatively, foreign investors held $65 million in these assets during the same period last year.
To address its ailing economy, Pakistan’s government established the Special Investment Facilitation Council (SIFC) in 2023, aiming to attract investments in key sectors like minerals, agriculture, and defense. While the council has generated interest, tangible results remain limited due to execution challenges, including erratic tax policies and macroeconomic uncertainties.
Prime Minister Shehbaz Sharif has set ambitious plans to expand exports to $60 billion over five years to bolster foreign exchange reserves. Yet, these reserves remain critically low at $10.6 billion, barely covering two months of imports. The International Monetary Fund (IMF) requires this figure to accommodate at least three months of import payments.
Economic experts cite systemic issues such as high taxes, political instability, and frequent financial bailouts stifling investor confidence. While some improvement in macroeconomic indicators is noted, the overall sustainability of these gains remains uncertain.
Pakistan’s path to economic recovery is hindered by its inability to secure substantial foreign investments, despite signing numerous agreements in recent decades. Without major structural reforms, the current economic trajectory leaves potential investors cautious about long-term commitments.
