By Abdul Ghani

Pakistan's power and financial services sectors attracted the largest share of foreign direct investment (FDI) during FY2025-26, highlighting continued investor interest in key areas of the economy despite global economic uncertainties, according to the Finance Division.

The Monthly Economic Update & Outlook (June 2026) states that while overall foreign investment remained affected by global financial conditions, strategic sectors continued to draw substantial capital inflows, supporting Pakistan's economic recovery and long-term development objectives.

According to the report, total FDI inflows reached $3.3 billion during July-May FY2025-26, while net FDI inflows stood at $1.6 billion. Although portfolio investment recorded net outflows during the period, direct investment remained an important source of external financing for productive sectors of the economy.

The report identifies the power sector as the largest recipient of foreign investment, attracting $871.4 million in net FDI during the first eleven months of the fiscal year. Continued investment in energy projects reflects the sector's importance in improving electricity supply, supporting industrial expansion and strengthening Pakistan's long-term energy security.

According to the Finance Division, the financial services sector ranked second, receiving $718.5 million in net foreign investment. The strong inflows indicate sustained investor confidence in Pakistan's banking and financial sector as macroeconomic conditions continue to improve.

The report also highlights China's continued position as Pakistan's largest source of foreign direct investment. During July-May FY2025-26, China contributed $819 million in net FDI, accounting for the largest share among investing countries.

According to the document, improving macroeconomic stability has strengthened Pakistan's attractiveness for foreign investors. The report notes that continued implementation of economic reforms, a stable external account, improving foreign exchange reserves and stronger investor confidence have supported direct investment in priority sectors.

While direct investment remained positive, the report notes that private portfolio investment recorded net outflows of $566 million, while public portfolio investment posted net outflows of $579.6 million during the reporting period. Despite these movements, sustained FDI inflows helped reinforce Pakistan's external financing position.

The Finance Division states that attracting foreign investment into productive sectors remains an important component of the government's economic strategy. Continued investment in energy and financial services is expected to improve infrastructure, strengthen financial intermediation, generate employment and support long-term economic growth.

According to the report, ongoing structural reforms, improved business confidence and a more stable macroeconomic environment are expected to encourage further foreign direct investment during FY2026-27. The Finance Division believes that sustained inflows into key sectors will strengthen Pakistan's productive capacity and contribute to higher, more sustainable economic growth.

Credit: INP-WealthPk