Foreign direct investment (FDI) in Pakistan ahs seen some modest and concentrated recovery in 1QFY27. Net FDI increased by nearly 20 percent year-on-year to $719.7 million in 1QFY27. While the improvement is encouraging, the overall investment flows remain small.
In Sep-26, net FDI stood at $219.5 million, up 18.5 percent year-on-year but down around 31 percent from August’s $315.9 million. The monthly decline highlights the uneven nature of investment flows, where a few large transactions can significantly influence the headline numbers.
The quarterly improvement was supported by higher gross inflows, which rose by 20 percent to $968 million. However, outflows also increased by 20 percent to $248 million.
Country-wise, Canada emerged as the largest source of FDI in 1QFY27, contributing $229 million, followed by China at $197.5 million. However, growth-wise, iInvestment from China increased by nearly 63 percent year-on-year, while Canadian inflows remained largely unchanged. Together, the two countries accounted for almost 60 percent of total net FDI, highlighting the country’s continued dependence on a handful of investors.
The UK also recorded an improvement, with inflows rising to $83.4 million from $61.3 million, while investment from the UAE increased to $54.8 million by 36 percent. In contrast, inflows from Switzerland and Hong Kong declined.
September’s numbers show a similar concentration. Canada led with $85.3 million, followed by the UK at $48.7 million and China at $43.8 million. The composition of inflows continues to shift from month to month, suggesting that investment activity remains transaction-driven rather than broad-based.
Sector-wise, financial businesses attracted around $191 million during 1QFY27, up 39 percent year-on-year, while investment in the power sector increased to $139.4 million by 32 percent. Mining and quarrying also witnessed notable inflows, particularly during September.
The country-wise and sector-wise trends offer some clues about where the investment may be going. Canada’s strong inflows could be linked to mining and quarrying, given Canadian investors’ interest in Pakistan’s mineral resources and ongoing mining projects. Similarly, the UK’s investment may have flowed into financial services, considering the presence of financial institutions and investment interests in Pakistan. Both mining and financial businesses attracted most inflows in September, lending some weight to these assumptions. However, without a country-sector breakdown, these links cannot be confirmed.
The larger concern is that FDI continues to be concentrated in a few sectors. Investment in financial services, power and mining is welcome, but Pakistan needs more foreign capital in export-oriented manufacturing, technology and other productive industries. These investments are important for creating jobs, improving productivity and building export capacity.
There is no shortage of investment announcements, particularly in mining, energy, technology and industrial development. However, the gap between investor interest and actual capital inflows remains significant. Memoranda of understanding and investment commitments are positive signals, but they mean little until projects materialise and money starts flowing in.
A 20 percent increase for 1QFY27 from a low base is hardly a turnaround. High energy costs, taxation, regulatory uncertainty and weak domestic demand continue to discourage investors. Policy consistency, easier business operations and confidence in profit repatriation will be critical to attracting sustained investment.
Pakistan’s challenge is not just to attract more FDI, but to attract investment across a wider range of sectors that can generate exports, jobs and productivity gains. The first quarter shows some improvement, but a meaningful revival in foreign investment remains a long way off.