EDITORIAL: Foreign direct investment (FDI) has plunged by 43 percent July-December 2025 as per data released by the State Bank of Pakistan.
This is a further decline from data released by the Finance Division in its monthly report titled Economic Update and Outlook for December FDI was reported at USD 927.4 million (July-November) 2025 against USD 1,242.4 million in the comparable period of the year before — a decline of 34 percent.
Portfolio investment registered negative USD 613.8 million July-November 2025 against USD 148.7 million in the same period of 2024, thereby raising serious questions as to what are the major lacunas in FDI and portfolio investment inflows, especially, given that over USD 25 billion Memoranda of Understanding have been signed between Pakistan and other countries during the past two to three years? An oft-cited reason is the lack of environment that is conducive to foreign inflows — with Pakistan’s trade deficit once again beginning to bludgeon, reflecting the inability of the reforms to break the boom-bust cycle, the foreign exchange reserves are largely if not wholly debt-based and the rupee-dollar parity remains under control due to what is perceived not as market forces.
A news item carried in a section of press may provide another equally if not more cogent reason for not only very low FDI inflows into the country compared to our regional competitors — particularly China and India — but also the decline in the FDI in recent months.
READ MORE: FDI plunges 43% in 1HFY26
Thirty-two Saudi individuals and entities and five Kuwaiti investors in K-Electric have launched a USD 2 billion international arbitration case against Pakistan on 16 January 2026 after failure to resolve a dispute over regulatory intervention, unpaid government dues and a decades-long dispute over the USD 1.77 billion sale of the only private power company in the country.
Lessons must be drawn from the serious flaws in the privatisation of K-Electric under the advice of multilaterals that range from insistence to equalise tariffs countrywide through subsidies (K-Electric has been budgeted a subsidy of 125 billion rupees this year) which defeats the very purpose of privatisation, as well as the option of purchasing electricity from the national grid (which makes economic sense today though not earlier as capacity payments have risen markedly due to the ill-advised incentives given for solarisation).
In addition, the litigants have accused the government of undermining the independence of the regulator, Nepra, by not notifying its tariff determination in May 2025 — a charge strengthened by reports that the Power Division is seeking amendments to the Nepra Act 1997 and Electricity Act 1910 to make the regulator subordinate to its dictates though reports suggest that the Prime Minister has taken strong exception to this proposal. These concerns were voiced to the Prime Minister during his trips to Saudi Arabia and Kuwait and while he did pledge to resolve these issues they remained unresolved.
While administration after administration rhetorically seeks FDI yet instances where the foreign investor(s) has to resort to international arbitration abound — a major deterrent to any future investors and in a majority of cases Pakistan lost and had to pay millions of dollars of penalties.
One can only hope that the government in general and the Special Investment Facilitation Council in particular take cognizance of failure to respond in a timely manner to existing foreign investor concerns and begins to hold those involved responsible instead of quietly paying the penalty out of our extremely scarce foreign exchange reserves.
Copyright Business Recorder, 2026
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