Foreign investment in Pakistan drops 34 percent amid weak investor confidence

KARACHI: Foreign direct investment (FDI) in Pakistan fell sharply by 34 percent in the first quarter of the current fiscal year, reflecting lingering concerns among global investors despite recent signs of economic recovery.

According to data released by the State Bank of Pakistan (SBP) on Monday, the country received USD 568.8 million in FDI during July to September of FY26, down from USD 864.6 million in the same period last year. The fall of nearly USD 296 million shows that investor sentiment remains fragile, as both domestic and international challenges continue to weigh on the country’s outlook.

Investor caution persists

Total FDI inflows stood at USD 886 million in the first quarter, compared with USD 1.315 billion in the corresponding period of FY25. Analysts say the persistent decline in investment reflects global uncertainty, high interest rates, and Pakistan’s slow pace of structural reforms.

Although the government has taken steps to restore stability through fiscal discipline and tighter monetary policies, many investors remain cautious due to policy inconsistency and political unpredictability.

Portfolio outflows deepen

The weakness extended to portfolio investment, which saw net outflows of USD 121.5 million during the quarter. Market experts link this trend to profit-taking by foreign investors and subdued trading activity in the stock and bond markets.

As a result, Pakistan’s overall net foreign investment turned negative, standing at USD 64.5 million in the first quarter of FY26. In comparison, the same period last year recorded a positive net investment of USD 997 million.

September sees sharp decline

On a monthly basis, FDI fell to USD 185.6 million in September 2025, down from USD 417.4 million in the same month last year. The consistent slide highlights the urgent need for long-term reforms to improve investor confidence.

Analysts call for stability and reforms

Economic analysts note that while the country’s external position has improved due to a smaller current account deficit and strong remittance inflows, the slowdown in both FDI and portfolio investment points to deeper structural issues.

They believe that Pakistan must focus on ensuring policy continuity, improving the ease of doing business, and maintaining political stability if it wants to attract sustainable foreign capital.