Foreign direct investment in Pakistan falls 22% in first two months of FY26

Foreign direct investment (FDI) into Pakistan declined 22% in the first two months of the current fiscal year (FY26), highlighting ongoing challenges in attracting foreign capital despite government efforts to revive economic activity.

According to data released by the State Bank of Pakistan (SBP), the country received USD 364.3 million in FDI during July-August FY26, down from USD 467 million in the same period of FY25, a decline of USD 103 million.

Gross FDI inflows fell 16% year-over-year to USD 560 million, while outflows decreased 2% to USD 196 million.

On a single month basis, the drop was even sharper: FDI plunged 43% to USD 156 million in August this year, compared to USD 272.4 million in August 2024.

China remained the largest source of FDI during the two-month period, contributing USD 120 million. However, this was a significant drop from USD 254 million in the same period last year. Hong Kong was the second-largest investor, with USD 60 million, also down from USD 86 million year-over-year.

Foreign Portfolio Investment (FPI) also posted negative trends, recording a net outflow of USD 75 million in July-August FY26, compared to an inflow of USD 25 million in the corresponding period of FY25.

Overall, net foreign investment—which includes FDI, portfolio investment, and foreign public investment—dropped by 51%, falling to USD 278 million from USD 570 million in the same period last fiscal year, a decline of USD 292 million.

For context, Pakistan attracted USD 2.457 billion in FDI during FY25, slightly up from USD 2.347 billion in FY24.

Experts also point to Pakistan’s challenges in ensuring contract enforcement, frequent changes in tax regimes, and delays in the implementation of energy and infrastructure reforms as key deterrents.

“Without structural reforms and a clear roadmap for economic governance, Pakistan will struggle to attract and retain meaningful foreign investment,” analyst added.