By Abdul Ghani

Private investment increased by 12.8% in FY2025-26, reflecting improving investor confidence and strengthened macroeconomic stability as Pakistan's economy continued its recovery path, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The survey identifies private-sector investment as a key contributor to economic growth during the fiscal year, with businesses increasing capital spending amid a more stable economic environment and improved growth prospects.

According to the survey, the investment-to-GDP ratio remained stable at 14.38% during FY2025-26, while total Gross Fixed Capital Formation (GFCF) rose by 10.9% to Rs16,071.2 trillion. The increase was largely driven by stronger private-sector capital formation, highlighting growing confidence among businesses in the country's economic outlook.

The survey notes that the improvement in investment activity came despite domestic and external challenges, including the 2025 floods, regional geopolitical tensions and global economic uncertainty. Improved macroeconomic indicators, however, helped offset these risks and encouraged greater participation by the private sector.

A major factor supporting investment was exchange rate stability. The rupee remained broadly stable throughout the fiscal year, reducing uncertainty for businesses involved in production, imports, exports and long-term planning. Stable exchange rates allowed investors to make capital-allocation decisions with greater confidence.

The survey also points to easing inflationary pressures as an important driver of investment activity. Compared with the high inflation environment experienced in previous years, FY2025-26 offered a more predictable business climate, helping firms plan expansion and investment projects more effectively.

Fiscal consolidation efforts further strengthened investor sentiment. According to the survey, the fiscal deficit narrowed significantly while the primary surplus improved, reflecting stronger revenue mobilization and prudent expenditure management. These developments contributed to greater macroeconomic stability and improved confidence in the country's economic direction.

National savings remained broadly aligned with investment needs during the fiscal year. The survey shows that national savings stood at 14.13% of GDP, resulting in foreign savings of only 0.24% of GDP. This indicates that investment activity was increasingly supported by domestic resources rather than external borrowing, strengthening the sustainability of economic growth.

The recovery in industrial activity also supported higher investment. Large-scale manufacturing recorded growth of 6.11% during FY2025-26 after contracting in the previous year. Improved performance across key manufacturing industries increased demand for machinery, equipment and productive assets, encouraging fresh investment.

Similarly, the construction sector expanded by 5.73%, reflecting increased activity in infrastructure, housing and industrial development. Construction growth is often regarded as a key indicator of investment trends because of its strong linkages with cement, steel, engineering and other industrial sectors.

The survey notes that the government continued implementing a broad reform agenda aimed at improving the investment climate. Measures undertaken during the fiscal year included reforms in tax administration, digitization of economic processes, tariff rationalization, energy-sector restructuring, public debt management and investment facilitation.

According to the Ministry of Finance, these reforms are intended to reduce business costs, improve efficiency and create a more competitive environment for private-sector investment.

The survey further highlights that Pakistan's economy recorded growth of 3.7% during FY2025-26, providing a supportive backdrop for investment expansion. Stronger economic activity, improved business sentiment and better macroeconomic fundamentals collectively helped create conditions conducive to higher capital formation.

The Ministry of Finance believes that sustaining investment growth will be critical for achieving higher economic growth, increasing productivity, generating employment and strengthening the country's productive capacity. According to the survey, the strong rise in private investment during FY2025-26 signals growing confidence in Pakistan's economic recovery and provides a foundation for more durable and investment-led growth in the coming years.

Credit: INP-WealthPk