Pakistan’s leaders often highlight diplomatic breakthroughs and initiatives like the Special Investment Facilitation Council (SIFC) as signs that foreign investors are finally taking notice. With high-profile visits and billions in signed memorandums of understanding (MoUs), the narrative is one of turnaround. Yet, the latest data from the State Bank of Pakistan (SBP) tells a more cautious story.
For the first five months of FY2026 (July-November 2025), net foreign direct investment (FDI) stood at around $927 million—down significantly from previous periods and far from the transformative inflows the country needs.
This gap between ambition and reality is stark. While privatization efforts, like the recent sale of First Women Bank, and IMF projections offer some optimism, underlying issues persist. The current account flipped to a small surplus in November, buoyed by remittances, but wider deficits in trade and muted industrial activity raise questions about sustainable recovery. As the government pushes for more FDI, it is worth asking: are these efforts translating into real investment, or are structural hurdles still holding Pakistan back?
The SBP’s provisional figures for July-November FY2026 show gross FDI inflows at $1,474.2 million, compared to $2,151.9 million in the same period the prior year—a notable drop. Outflows were lower at $546.8 million versus $909.5 million previously, resulting in net FDI of approximately $927 million. China remained the top contributor, with around $308 million, but even that was concentrated in traditional sectors like power and finance.
This decline comes despite the SIFC’s mandate to streamline approvals and attract investment. Established to cut red tape and act as a one-window facilitator, the council has indeed helped sign MoUs worth over $25 billion in potential deals. High-level engagements, including visits by the Prime Minister and military leadership, have boosted Pakistan’s geopolitical profile. However, converting these agreements into actual binding contracts and on-ground projects remains elusive.
The IMF, in its recent second review of the Extended Fund Facility, which completed in December, projected FDI at just 0.5% of GDP for the current year—down from 0.6% last fiscal. While praising the SIFC for its authority to fast-track investments, the Fund raised concerns about its “untested transparency and accountability provisions.” Staff emphasized the need for clear reporting on SIFC-linked inflows and any associated incentives, aligning with commitments to avoid new tax breaks or subsidies that could distort the playing field.
One bright spot—or point of contention—is privatization. The SBP reported zero proceeds from privatization in the period under review, which seems odd given the high-profile sale of First Women Bank Limited (FWBL). In October 2025, the government divested its 82.64% stake to Abu Dhabi-based International Holding Company (IHC) for about $14.6 million (Rs4.1 billion). Hailed by the Prime Minister as a boost to UAE-Pakistan ties, the deal marked a rare successful privatization.
Why the zero in official data? It could be timing—the transaction might not have been fully reflected in the July-November figures—or classification issues. Nonetheless, this modest inflow underscores a broader challenge: Pakistan’s privatization drive has yielded limited results, often hampered by political sensitivities and valuation disputes.
On the external front, November brought a small current account surplus of $100 million, a relief after deficits in prior months. However, the July-November cumulative balance was a $812 million deficit—worse than the $503 million surplus last year. The goods trade deficit widened to $12.769 billion from $9.799 billion, and services trade remained in the red at $1.316 billion.
The saving grace? Workers’ remittances surged to $16.145 billion, up from $14.767 million. The Prime Minister has framed this as evidence of “brain gain” over “brain drain,” reflecting confidence in the economy. Yet, the IMF expects moderation ahead, as global slowdowns and shifting migration patterns take hold.
Pakistan’s investment climate still faces headwinds: high energy costs, policy inconsistency, security perceptions, and a cumbersome regulatory environment. Multinational exits and factory closures continue, signaling waning confidence. Unemployment is rising, private sector wage growth is stagnant, and public salaries—covering just 7% of the workforce—keep climbing at taxpayer expense.
Elite capture persists, exemplified by the recent rollback of rules limiting double benefits for reemployed pensioners. Without deeper reforms—broadening the tax base, cutting wasteful spending, and ensuring transparent incentives—FDI will likely stay subdued.
The SIFC’s short-term target is $5 billion annually, with grander long-term visions. But until MoUs turn into factories, jobs, and exports, these remain aspirations.
Pakistan’s macroeconomic indicators show pockets of stability—lower inflation, rebuilt reserves, and remittance strength—but they don’t yet support claims of escaping fragility. FDI inflows are down, privatization proceeds minimal, and trade imbalances growing. The SIFC and diplomatic push are steps forward, but real progress demands structural change: fair incentives, transparency, and an attractive business environment.
Until reforms bear fruit, alternatives like debt write-offs or rescheduling might offer breathing room. For now, the economy’s recovery feels fragile, reliant on remittances and stopgaps rather than robust investment. Leaders must bridge the gap between promises and delivery to turn potential into prosperity—one concrete project at a time.