Moaaz Manzoor

Pakistan's foreign direct investment (FDI) surged by 56% to $1.52 billion in 7MFY25 against $975 million in the same period last year, reflecting renewed investor interest, yet the lingering economic instability, policy unpredictability, and regulatory inefficiencies continue to hinder a sustainable investment climate, reports WealthPK.

The surge in FDI in the first seven months of FY25 marks a notable improvement. The FDI inflows remain the lowest in the region due to persistent structural challenges. The recent rise in FDI is primarily driven by China, which contributed $633.6 million, significantly higher than last year’s $118 million. Other key investors include Switzerland and the UK. However, analysts cautioned that the external instability would continue to undermine investor confidence.

Speaking with WealthPK, Ali Najib, Head of Equity Sales at Insight Securities, said the rising FDI figures reflected growing investor confidence, partially influenced by policy measures to attract foreign capital. The positive trend highlights Pakistan’s potential as an investment destination, he added. He pointed to the energy, infrastructure, and technology sectors as the key drivers of these inflows.

However, concerns remain, as the portfolio investments saw net outflows, signaling a declining confidence in the equity markets. Additionally, while foreign public investment showed moderate gains, total foreign private investment declined year-on-year. These trends suggest that Pakistan must create a more stable and predictable investment environment. “To sustain FDI growth, the country must address regulatory inefficiencies, market volatility, and political uncertainty.

A simplified tax structure and improved ease of doing business will be critical,” he added. Majid Shabbir, CEO of Ifsha Consultants, emphasized that long-term challenges persisted. At the same time, the January 2025 net FDI inflow of $194 million represents a 56% year-on-year increase for the first seven months of FY25. “The FDI inflows are improving, but they remain well below peak levels seen in the early 2000s,” he noted.

The power sector attracted the largest share of investment, followed by financial services, oil and gas exploration, and electronics. The International Finance Corporation (IFC) has announced plans to double its investments in Pakistan. Saudi Arabia has also shown interest, particularly in the mining sector, with its investment fund Manara Minerals considering a stake in the Reko Diq copper and gold project.

“These commitments could signal optimism, but their success depends on regulatory efficiency and policy continuity,” Shabbir warned. Despite these positive developments, Pakistan’s investment climate remains uncertain. Political instability, inconsistent policies, and economic volatility continue to pose risks for investors.

The sudden shifts in governance, legal ambiguities, and currency fluctuations deter long-term commitments. While the FDI has shown an upward trajectory, sustaining this momentum will require a more transparent and stable business environment. If Pakistan can implement structural reforms and ensure policy consistency, it stands a better chance of turning the short-term FDI gains into long-term economic growth.

Credit: INP-WealthPk