Pakistan's efforts to attract overseas capital suffered a significant setback in the first 10 months of fiscal year 2025-26, as foreign direct investment (FDI) fell by 31%, highlighting persistent concerns over governance and policy predictability despite continued inflows into key sectors.
According to data released by the State Bank of Pakistan (SBP), the country received $1.409 billion in FDI during July-April FY26, compared with $2.035 billion during the corresponding period of the previous fiscal year.
The decline underscores the challenge facing policymakers as they seek to secure long-term external investment at a time when foreign capital remains crucial for economic expansion, job creation and balance-of-payments stability. The central bank attributed the weaker performance to governance-related concerns and policy uncertainty, factors that continued to weigh on investor confidence throughout the period under review.
Despite the overall decline, gross foreign investment inflows remained close to $3 billion. However, outflows of approximately $1.57 billion significantly reduced the net gains, leaving overall FDI substantially below last year's level.
The power sector retained its position as the largest destination for foreign capital, attracting $786 million during the first 10 months of FY26. The sector's dominance reflects continued investor interest in energy-related projects despite broader economic challenges.
Financial businesses emerged as the second-largest recipient, drawing $659 million in inflows. According to the SBP, investment activity in this segment was supported by the expansion of Islamic banking, capital originating from Kuwait and the United Arab Emirates, and ongoing investment linked to the licensing of digital banks. China remained Pakistan's leading foreign investor during the period, contributing $739 million. Hong Kong followed with $256 million, while South Korea ranked third with inflows of $80 million.
The broader picture for external investment was even weaker. Total foreign investment during July-April FY26 stood at only $32 million, a sharp decline from $1.46 billion recorded during the same period of the previous fiscal year.
The figures suggest that while selected sectors continue to attract foreign participation, Pakistan's overall investment environment remains under strain. The sharp fall in inflows points to the continuing importance of addressing investor concerns over governance and policy consistency if the country is to reverse the downward trend and attract larger volumes of long-term foreign capital.