Pakistan has pulled itself back from the brink of default, but foreign capital remains unconvinced. Net foreign direct investment (FDI) slid to roughly $1.7bn in the 2025-26 fiscal year, down from $2.49bn a year earlier, a drop of about 30%. A sharp monthly rebound in July, the first month of the new fiscal year, briefly flattered the figures. Yet inflows were still a fifth lower than in the same month of 2025, and critics argue that the country’s problem lies less in its markets than in the machinery of the state.
Central-bank data released on Tuesday showed FDI jumping by 264% month-on-month to $179m in July. That bounce came off an exceptionally feeble June, which Topline Securities, a brokerage, partly blamed on outflows from some electronics and food businesses. Power drew $57.5m and financial services $62.3m, making them the largest recipients, while China and Canada were the leading sources. One analysis summed up the picture as stabilisation without transformation.
The macroeconomic backdrop has undeniably improved. A severe balance-of-payments crisis in 2022-23 pushed Pakistan close to default and forced it back to the IMF. Under a $7bn programme approved in 2024, reserves have recovered, inflation has eased sharply from its 2023 peak and growth has picked up. In May the fund said reforms had restored stability and rebuilt external buffers, but warned that structural changes were still needed to lift competition, productivity and the business climate. It projects FDI at only about 0.5% of GDP.
Multinationals already in the country offer a partial counterpoint. A report published on Monday by the Overseas Investors Chamber of Commerce and Industry (OICCI), which represents more than 200 foreign-invested firms, says its members put over $23bn into Pakistan over the past decade, exceeding the roughly $21bn of cumulative net FDI. The two measures differ: the chamber’s tally covers spending by existing members, while the national figure tracks net cross-border flows, including equity, intercompany lending, capital equipment and reinvested earnings.
The chamber’s members are hardly marginal. In fiscal 2025 they generated Rs13.1trn ($47.2bn) in gross revenue, held Rs42trn ($151.2bn) in assets, spent Rs615bn ($2.2bn) on capital projects and paid Rs3.2trn ($11.5bn) in taxes and levies. Oil, gas and energy companies contributed 36% of those levies; banks, insurers and other financial firms held 75.6% of combined assets; telecoms accounted for a third of capital expenditure. Pre-tax profits at 51 listed members compounded at 26% a year in rupee terms between 2021 and 2025, and 11% in dollars.
Still, faith among incumbents has not translated into fresh arrivals. Despite a population exceeding 240m and repeated drives to woo investors from China, Saudi Arabia and the United Arab Emirates, Pakistan has long lagged comparable emerging economies. OICCI officials have previously cited macroeconomic instability, inconsistent policies, taxation and regional security among the deterrents, and the chamber argues that greater regulatory predictability would let foreign firms contribute far more to growth, exports and employment.
Over the past decade, moreover, numerous multinationals have quietly departed. Their exit, critics contend, cost the country far more than money: globally recognised brands, thousands of high-quality jobs, management systems, technical know-how, research, supplier development and technology transfer. Each departure also signals to prospective entrants that if established global firms struggle to operate, newcomers face steeper odds. Strikingly, no comprehensive official study has ever examined why they left.
The issue resurfaced at a Pakistan-UK roundtable this week, attended by British companies, multinationals, the OICCI, British High Commission officials and provincial ministers. Syed Murad Ali Shah, Sindh’s chief minister, restated his government’s commitment to regulatory simplification, policy consistency and a transparent business environment. Sceptics say the difficulty lies in execution, not declarations. Investors in Sindh still face paper-based approvals involving multiple no-objection certificates, clearances and inspections, each adding delay, financing charges and idle machinery.
Neighbouring Punjab, by comparison, is generally seen as further ahead in digitising services and co-ordinating approvals, with investors citing quicker responses and faster project delivery. Sindh enjoys enviable assets, including a strategic coastline, the country’s largest commercial hub, industrial clusters and a sizeable consumer market, yet administrative friction steadily erodes them. Proposed remedies include a legally empowered one-window digital investment authority, statutory deadlines with deemed approval, published departmental performance indicators and an independent inquiry into the corporate exodus.
The composition of inflows is a further worry. Global capital is chasing data centres, AI infrastructure, semiconductors, renewables and advanced manufacturing. India draws technology and services money, Vietnam is woven into export manufacturing, Malaysia has electronics clusters and Indonesia is processing its minerals. Pakistan still relies on investment tied to domestic demand, regulated industries and state-backed frameworks, with local firms doing too little to anchor foreign partners. The real test for the current year is not whether FDI rises from a low base, but whether it shifts towards manufacturing, technology and exports.