Pakistan investment slumps, could hit historic low below 13% of GDP

Pakistan’s investment-to-GDP ratio could drop below 13 per cent in FY26, raising concerns among analysts and bankers about a historic slump in both domestic and foreign investment. According to a report by Dawn News.

Industrialists cite political uncertainty, terrorism, and border tensions as major barriers. “How is it possible to invest in a country where uncertainty is deeply entrenched and reflected in declining foreign investment?” asked Aamir Aziz, textile finishing manufacturer and exporter. He noted that domestic textile groups, including Interloop and Artistic Milliners, are increasingly moving investments abroad, effectively outsourcing jobs.

The 2023 Investment Policy set a target of raising the investment-to-GDP ratio to 20 per cent. The Special Investment Facilitation Council (SIFC) was formed to attract foreign capital, but progress remains limited. “Two provinces face severe terrorism, and tensions with India and Afghanistan persist along the borders. Under these conditions, no government can convincingly attract investors,” said an industrialist.

Pakistan’s current ratio is far below regional peers, where investment typically ranges between 25 and 30 per cent. It fell to 13.1pc in FY24 (later revised to 13.8pc) and edged up to 14.1pc in FY25. The long-term average from 1960 to 2024 stands at 15.9pc, indicating a steady decline.

High taxation and elevated interest rates are adding to the investment slowdown. Industrialists are demanding tax cuts and a 100 basis point reduction in the policy rate, currently 11pc. Inflation was recorded at 6.1pc in November.

Experts warn that foreign investment generally follows domestic momentum. Economist S.S. Iqbal said Pakistan must update trade and industrial policies to align with the global economic shift, especially as China emerges as a key partner. Pakistani exporters continue to face barriers in accessing Chinese markets.

A senior banker called the outlook “grim,” noting that job creation depends on higher investment. An independent economist said Pakistan’s biggest economic failure is not inflation or debt, but the lack of consensus on long-term strategy, timelines, and measures of success.

Faisal Mamsa, CEO of Tresmark, cited economist Atif Mian’s “Five-for-Fifty” plan—achieving 5pc GDP growth annually for 50 years—as possible if the nation prioritises sustained growth over short-term political or ideological interests.

The combination of political instability, security concerns, and policy inaction continues to undermine investor confidence, leaving Pakistan at risk of falling behind regional competitors.