Pakistan’s FDI slump exposes decades-long economic stagnation

Pakistan has repeatedly turned to the IMF and friendly countries for loans and debt rollovers, a pattern that reflects more than short-term fiscal pressures.

In the latest episode of On My Radar, Kamran Khan explained that these recurring requests are rooted in long-standing structural weaknesses in the country’s economy, rather than the policies of any single government.

He highlighted two critical pillars at the heart of Pakistan’s economic challenge: exports and foreign direct investment (FDI). Over the past two decades, exports have remained largely stagnant, fluctuating between $25 billion and $30 billion without experiencing sustained growth or a breakthrough.

FDI has shown similar limitations, averaging just $2 billion annually over the past 26 years. In practical terms, Khan noted, this means that the economy cannot generate enough dollars internally, nor attract sufficient long-term foreign investment, leaving Pakistan reliant on short-term borrowing and external support.

The episode cited clear indicators of declining investor confidence. Several major multinational companies, including Procter & Gamble, Shell, Pfizer, Total, and Telenor, have scaled back or exited Pakistan in recent years.

The reasons are familiar: inconsistent government policies, a weak economic environment, rising energy costs, and an overbearing tax burden on documented businesses, while the informal sector operates largely untaxed. This combination, he explained, creates an environment of unfair competition and high risk, deterring serious investors.

Recent statistics underscore the severity of the challenge. Data from the State Bank of Pakistan show a 51% decline in net FDI during the first seven months of the current fiscal year, falling to just $694 million from $1.429 billion in the same period last year. Khan emphasized that this is part of a decades-long trend.

Between 1999 and 2025, Pakistan attracted a total of only $52 billion in FDI, far below what global standards would suggest. For context, India has averaged $44 billion annually since 2010, while Vietnam—a smaller economy—attracts about $14 billion each year.

Khan also examined institutional challenges that have compounded the problem. While the Special Investment Facilitation Council (SIFC) was created to reduce bureaucratic delays, discussions about merging it with the Board of Investment have raised concerns about policy continuity.