FDI plunges by 43.3% in July-December of current fiscal year

ISLAMABAD: Foreign Direct Investment (FDI) into the country declined sharply by 43.3 percent in July-December of the current fiscal year (FY26); portfolio investment remained in the negative territory (-225.1 million USD against - 221.8 million USD in the same period last year) while Pakistan’s Stock Market index rose by a whopping 64.2 percent, market capitalisation by 49.9 percent and incorporation of companies by 28.7 percent.

This was revealed in Finance Division’s (FD’s) ‘Monthly Economic Update and Outlook January 2026’ released on Tuesday.

It said exports declined by 5 percent while current account deficit widened to USD1.174 billion in the first half (July-December) of current fiscal year 2026, compared to the same period of last fiscal year.

READ MORE: FDI plunges 43% in 1HFY26

Inflation is expected to remain within the range of 5-6 percent in January, while current account is projected to remain in a deficit. FDI totalled USD808.1 million during July–December fiscal year 2026, down from USD1.424 billion in the corresponding period of fiscal year 2025. The decline was also witnessed in December 2025 when it came down to (-USD134.7) million against USD182.4 million in December 2024.

Main sources of net inflows were China (USD422.9 million) and Hong Kong (USD163.8million). Sector-wise, power (USD470.9 million) and financial services (USD401.5 million) attracted the most FDI, while communications recorded an outflow (USD411.4 million).

Total foreign investment dropped substantially to USD207 million in July–December 2025-26, down from USD1.343 billion a year earlier. Portfolio investment recorded at –225.1 million, compared to -221.8 million in the same period last year.

Private & public FPI recorded net outflows of USD225.1million and USD375.5 million, respectively. As of January 16, 2026, foreign exchange reserves stood at USD21.3 billion, including USD16.1 billion with State Bank of Pakistan (SBP).

Remittances were up 10.6 percent to USD19.7billion, led by inflows from Saudi Arabia (23.9 percent share) and UAE (20.7 percent). Monthly inflows for December reached USD3.589 billion, up 16.5 percent when compared to USD3.080 billion during the same month of last year.

The report noted that Consumer Price Index (CPI) inflation recorded at 5.6 percent year on year (YoY) in December 2025 as compared to 6.1 percent in the previous month and 4.1 percent in December 2024. On average, inflation during July-December fiscal year 2026 stood at 5.2 percent as against 7.2 percent during the same period last year.

Large Scale Manufacturing (LSM) registered a growth of 6.0 percent with Quantum Index of Manufacturing Industries (QIM) reaching its highest during July-November fiscal year 2026 since fiscal year 2016.

During the period, 16 sectors recorded positive growth, including textile, wearing apparel, non-metallic mineral products, food, beverages, coke & petroleum products, electrical equipment, automobile and tobacco. In November 2025, LSM grew by 10.4 percent on YoY basis and by 0.2 percent on month-on-month (MoM) basis.

Cumulative cement dispatches reached 25.8million tons, up 9.7 percent in July-December fiscal year 2026. Domestic dispatches totalled 21.1million tons, 13.1 percent YoY increase, while exports declined by 3.7 percent to 4.6million tons.

The report noted that agriculture sector posted growth of 2.9 percent in first quarter (Q1) of fiscal year 2026, showing improvement from 1.0 percent during the same period last year.

The important crops (excluding Wheat being Rabi crop) recorded a contraction of 0.7 percent as compared to a contraction of 13.1 percent during Q1 last year, mainly due to reduced cotton production (-1.2 percent).

Other crops also witnessed a contraction of 6.4 percent as compared to 19.3 percent contraction in Q1 last year driven by lower green fodder production (-14.4 percent) and increase in input (fertilizer 13 percent).

Livestock grew strongly by 6.3 percent (vs. 2.0 percent in Q1 last year) supported by decrease in value of inputs (green fodder - 14.4 percent).

Forestry and Fishing recorded steady growth of 2.1 percent and 0.9 percent, respectively by retaining their normal growth tendency. On input side, agricultural credit disbursement increased by 11.4 percent to Rs. 1,411.6 billion during July-December fiscal year 2026 from Rs. 1,266.7 billion last year.

Moreover, the imports of agricultural machinery & implements increased by 21.6 percent to USD65.8 million during July-December fiscal year 2026 from USD54.1 million last year.

During Rabi 2025-26 (October-December), urea off-take was 2,526 thousand tons (26.1 percent higher than Rabi 2024-25), whereas DAP off-take was 543 thousand tons (22 percent less than Rabi 2024-25).

Credit flow to the private sector registered Rs578.4 billion during 1st July to 9th January fiscal year 2026 against Rs1.520 trillion) during 1st July to 10th January fiscal year 2025.

The report noted that government has achieved a fiscal surplus during July-November fiscal year 2026 owing to a growth in revenue and a considerable reduction in mark-up payments.

Gross federal revenue receipts recorded a growth of 7.8 percent during the reference period, contributed by growth in both Federal Board of Revenue (FBR)’s taxes and non-tax revenue by 10.2 percent and 4.8 percent, respectively.

Total expenditure declined by 6.2 percent due to 6.4 percent reduction in current expenditure as mark-up payments declined by 21.3 percent. Development expenditure, on the other hand, posted an increase of 1.5 percent.

The government achieved a consolidated fiscal surplus of 0.8 percent of GDP during the period under review as compared to a deficit of 0.04 percent during the same period of last year.

A primary surplus of 2.8 percent was recorded as compared to a surplus of 2.9 percent during the corresponding period last year. During July-December fiscal year 2026, FBR’s tax revenue grew by 9.5 percent, reaching Rs. 6,161 billion, contributed by a growth in the direct taxes (8.9 percent), sales tax (10 percent), federal excise duty (15.6 percent) and customs duty (7.4 percent).

The current account posted a deficit of USD1.2 billion during July-December fiscal year 2026, compared to a surplus of USD0.96 billion recorded last year. Goods & services export recorded at USD20.3 billion compared to USD20.4 billion last year in which goods export stood at USD15.5 billion compared to USD16.3 billion during the same period of last fiscal year, resulting in 5 percent decline.

Goods & services import recorded at USD37.8 billion compared to USD33.5 billion last year, including goods imports of USD31.3 billion.

Trade deficit of goods & services increased to USD17.6 billion from USD13.1 billion last year.

During July-December fiscal year 2026, money supply (M2) shows a growth of 3.7 percent as compared to a contraction of 0.7 percent during the corresponding period of last year.

Within M2, Net Foreign Assets (NFA) of the banking system increased by Rs. 107.9 billion as compared an increase of Rs. 667.3 billion in last year; whereas, Net Domestic Assets (NDA) of the banking sector increased by Rs. 1,406.5 billion as compared a decrease of Rs. 934.7 billion last year.

Under the borrowing for budgetary support, the government retired Rs. 347.0 billion as compared to the retirement of Rs. 2,215.4 billion last year. Private Sector borrowed Rs. 992.3 billion as compared to a borrowing of Rs. 1,978.9 billion last year.

During first half of current fiscal year 2025, private sector credit was higher due to Advance-to-Deposit Ratio (ADR) criteria while during current fiscal year, demand for fixed investment loans by businesses increased to Rs. 257 billion, which, the report noted, bodes well for sustaining LSM growth in coming months.

December 2025 witnessed a strong recovery at the Pakistan Stock Exchange (PSX).

The KSE100 Index gained 7,376 points, closing at 174,054, reflecting improved investor confidence and renewed buying interest. Market capitalization increased by Rs. 823 billion, reaching Rs. 19,690 billion by end of December 2025. As of 26th January 2026, the KSE-100 Index stood at 188,587 points, with total market capitalization recorded at Rs. 21,161.7 billion.

Employment abroad and interest-free lending remained key pillars of income support and social resilience. In December 2025, the Bureau of Emigration & Overseas Employment registered 76,207 workers, 18.7 percent increase from 64,195 in December, 2024.

In calendar year 2025, the Bureau of Emigration & Overseas Employment registered 762,499 workers, representing a 5.1 percent increase over 725,672 workers registered in 2024.

The Pakistan Poverty Alleviation Fund, in partnership with 26 organizations, disbursed 21,050 interest-free loans worth Rs. 1,360 million during December 2025. Since 2019, a total of Rs. 122.8 billion have been provided to the borrowers. During July-November fiscal year 2026, Rs. 144.9 billion were spent under BISP, as compared to Rs.156.7 billion last year.

The report noted that Pakistan’s economy is well positioned to sustain its growth momentum in fiscal year 2026, supported by the encouraging performance of LSM and other high-frequency indicators. This positive trajectory reflects the impact of prudent policies, ongoing structural reforms, and easing of monetary conditions due to subsiding inflationary pressures.

On the external front, the current account is projected to remain in a deficit; however, robust remittance inflows and steady performance in IT and services exports are likely to cushion external pressures.

The improved fiscal management is also expected to continue supporting the macroeconomic stability.

Copyright Business Recorder, 2026