KARACHI: Both domestic and foreign investment are at their lowest levels and could set an unwanted record by falling below a 13 per cent investment-to-GDP ratio during the current fiscal year (FY26), analysts and bankers warn.
Trade and industry have repeatedly urged the government to improve the investment climate by addressing political uncertainty and terrorism.
“How is it possible to invest in a country where uncertainty has a strong grip and is clearly reflected in declining foreign investment?” asked Aamir Aziz, a textile finishing manufacturer and exporter.
He said domestic textile groups have begun investing abroad, citing Interloop and Artistic Milliners as examples. As a result, jobs are effectively being outsourced. For the first time in the country’s recent history, domestic investors are actively securing their investments outside Pakistan.
Experts cite political uncertainty, terrorism as main barriers
A senior banker described the situation as grim for both the economy and the public, saying job creation is only possible through higher investment, both domestic and foreign.
The Investment Policy announced in 2023 set a target of raising the investment-to-GDP ratio to 20pc through local and foreign inflows. To attract foreign investment, the Special Investment Facilitation Council (SIFC) was established, but so far it has failed to deliver tangible results.
“Look at the ground realities. Two provinces are facing severe terrorism, while tensions with India and Afghanistan persist along the borders. Under these circumstances, no government can convincingly attract domestic or foreign investors,” said an industrialist, explaining the low level of investment.
Pakistan’s investment-to-GDP ratio is almost half that of competing regional economies, where it ranges between 25pc and 30pc. The ratio fell to its lowest level in FY24 at 13.1pc, later revised to 13.8pc, and edged up slightly to 14.1pc in FY25. The long-term average from 1960 to 2024 stands at 15.9pc, indicating that conditions have steadily worsened.
Another major concern is the very high tax burden, with rates reaching up to 60pc, along with interest rates that remain elevated compared to regional peers. Industrialists are demanding tax reductions and a 100 basis point cut in the policy interest rate. The current policy rate stands at 11pc, while inflation was recorded at 6.1pc in November.
“We have yet to develop economic policies in line with the global economic shift. China is replacing the old model of global economic dominance.
Pakistan must read this change and revise its trade and industrial policies to remain connected to the new economic world order,” said S.S. Iqbal, an expert on the economy and money markets.
Pakistan’s trade with China has expanded significantly, making it the country’s largest trading partner. However, Pakistani exporters have struggled to gain meaningful access to Chinese markets.
Mr Iqbal said foreign investment typically follows domestic investment, adding that without local investment momentum, foreign inflows are unlikely.
