EDITORIAL: Foreign Direct Investment (FDI), as per data recently released by the State Bank of Pakistan, declined from USD 1,429 million July-January 2024-25 to USD 694 million in the same period of the current fiscal year – a decline of 51 percent.
This reflects a worsening trend in the FDI, given that July-December data released by the Pakistan Bureau of Statistics (PBS) in its January 2026 Update and Outlook noted a decline of 43 percent — from USD 1,424.8 million July-December 2024-25 (with a discrepancy of USD 4.2 million from SBP’s data) to USD 808.1 million in the same period this year.
It is relevant to note that portfolio investment (foreign) as per PBS also plummeted — from negative USD 221.8 million July-December 2025 to negative USD 225.1 million in the same period of the current year — a decline notwithstanding the fact that Pakistan offers one of the highest discount rates in the region (10.5 percent against less than half in China and India), a major attractor of portfolio investment, in spite of periodic baffling claims of a bullish trend in the domestic Pakistan Stock Exchange.
READ MORE: FDI at 0.45pc of GDP: Pakistan’s investment crisis
The question is why FDI is declining in spite of concerted policy decisions by the stakeholders targeted specifically to attract FDI — decisions that include the setting up of Special Investment Facilitation Council, at a national and sector-wide level, represented by the highest civilian (federal and provincial) and military personnel to ensure seamless synergy targeted to attract prospective foreign investors.
These decisions have been considerably strengthened by changing global geopolitics in general, subsequent to the emergence of a multipolar world, and of the region in particular after the display of Israeli hegemony fully supported by the US which, in turn, led to key regional players seeking security deals with Pakistan as the only nuclear Muslim country.
The answer lies in the fact that Pakistan’s economy remains extremely fragile, and investment decisions are not taken for security reasons but for purely economic reasons. In other words, while a country may seek security agreement due to a threat perception, yet that does not imply that either the government or the private sector will decide to invest in that country.
That decision will depend on the risk perception of the investor, assessed on the basis of political instability as well as economic fragility. Needless to add, grant assistance and/or previous loan write-offs are not linked to investor perceptions and so far there is no evidence that the government of Pakistan has pursued this aspect in its relations with regional partners.
READ MORE: Jul-Jan FDI falls 51pc YoY
Contrary to the government claims, Pakistan remains in the throes of economic fragility reflected by the fact that out of the USD 16 billion foreign exchange reserves, which is less than the annual interest payable on all previous loans. Out of this amount more than USD 12 billion are rollovers by three friendly countries that have to be approved on an annual basis with the remaining amount also borrowed from external sources (multilaterals, bilaterals and commercial loans).
Pakistan has a trade deficit though higher remittances are meeting a part though not the entire deficit.
The government is following severely contractionary monetary and fiscal policies agreed with the International Monetary Fund which are anti-growth coupled with poorly performing power and tax sub-sectors with the former borrowing large sums to retire the circular debt whose interest is payable by consumers while the latter continues to rely on indirect taxes whose incidence on the poor is greater than on the rich.
To conclude, existing policies are neither inclusive nor likely to strengthen the economy as structural reforms as well as a massive reduction of current expenditure will be critical to turning the economy around.
Copyright Business Recorder, 2026
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