Foreign Direct Investment

According to UNCTAD's World Investment Report 2024, FDI inflows to Pakistan stood at USD 1.81 billion in 2022, up by 24.3% year-on-year. At the end of the same period, the total stock of FDI reached USD 28.61 billion, around 8.5% of the country’s GDP. Figures from the Board of Investment show that, in the period 2011-12 to November 2024, the power sector was the primary recipient of FDI in Pakistan (29.7% of the total), followed by oil & gas (17.9%), financial business (15.2%), communication (it & telecom) (3.6%), trade (3.0%), transport (2.1%), chemicals (2.0%), construction (2.0%), and textiles (1.2%), while other sectors accounted for the remaining 23,2%. In regards to countries, China is by far the biggest investor in Pakistan (27%), ahead of the UK (12.9%), Hong Kong (11.3%), the U.S. (9.3%), and Switzerland (5.8%). According to the latest data from the State Bank of Pakistan (SBP), the country experienced a rise in inward FDI in the first half of FY 2024-25, with inflows reaching USD 1.33 billion, up from USD 1.1 billion in the same period of the previous fiscal year. Investments from mainland China totalled USD 535.5 million, reflecting a 48.2% increase from USD 361.5 million in the first half of FY 2023-24 and accounting for approximately 42.9% of Pakistan’s total inward FDI.

The potential attractiveness of Pakistan for investment remains lower than neighbouring India but equal to Sri Lanka and Bangladesh. Pakistan's attractiveness improves, albeit very slowly, against a backdrop of a challenging security environment, electricity shortages, and a burdensome investment climate that hinders investments, including complex and inconsistent regulations, insufficient protection of intellectual property rights, and constantly changing taxation policies. Pakistan maintains investment screening mechanisms for inbound foreign investment on the basis of national security. Foreign investors (except Indian and Israeli citizens/businesses) can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, except those involved in arms and ammunition; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. Pakistan allows companies to remit the proceeds of disinvestment to their foreign shareholders without prior approval from the State Bank. The government’s investment policy offers the same incentives, concessions, and facilities for industrial development to both domestic and foreign investors. While some incentives are included in the federal budget, the government primarily relies on Statutory Regulatory Orders (SROs) – ad hoc measures introduced through executive orders – for industry-specific incentives. Pakistan ranks 91st among the 133 economies on the Global Innovation Index 2024, 135th out of 180 in the Corruption Perception Index, and 150th out of 184 countries on the latest Index of Economic Freedom.