Pakistan’s foreign direct investment (FDI) declined sharply during fiscal year 2025-26, reflecting weaker investor confidence and rising capital outflows despite ongoing economic reforms. Fresh data released by the State Bank of Pakistan (SBP) shows that annual FDI dropped significantly compared with the previous fiscal year, while foreign divestment increased, underscoring the challenges facing the country’s investment climate.
The latest figures suggest that although Pakistan continues to attract investment into selected sectors, international investors remain cautious amid economic uncertainty and global market volatility.
Pakistan FDI Declines by One-Third in FY26
According to SBP data, Pakistan received $1.64 billion in foreign direct investment during FY26, compared with $2.48 billion in the previous fiscal year.
The decline of nearly one-third highlights a slowdown in long-term foreign capital inflows at a time when Pakistan is seeking overseas investment to support economic growth, industrial development, and job creation.
The figures indicate that foreign investors have become more selective, delaying or scaling back investment decisions despite efforts to improve the country’s business environment.
June FDI Drops to Just $13.5 Million
Investment activity weakened further in June 2026, when Pakistan recorded only $13.5 million in net foreign direct investment, compared with $210 million in the same month last year.
Although gross investment inflows totaled $294.4 million during June, the increase in capital withdrawals significantly reduced the overall net inflow.
Foreign investment outflows surged to $280.9 million, an increase of more than 168 percent year-on-year, leaving only a marginal net gain for the month.
The sharp rise in outflows suggests that several foreign investors chose to repatriate funds or reduce their exposure to Pakistan.
Portfolio Investment Remains Under Pressure
Portfolio investment continued to reflect cautious investor sentiment.
During June 2026, foreign investors recorded an equity portfolio outflow of $28.7 million. While this was lower than the $42.9 million outflow recorded in June 2025, it indicates that international investors remain hesitant about Pakistan’s financial markets.
Portfolio flows are generally viewed as an important indicator of investor confidence because they respond quickly to economic and political developments.
Foreign Private Investment Turns Negative
One of the most notable developments during June was the reversal in foreign private investment.
Instead of generating fresh inflows, foreign private investment registered a negative $15.2 million, compared with a positive $167.1 million during the same month last year.
Foreign public investment also remained weak, recording an equity outflow of $11.8 million.
Combined, these movements resulted in total foreign divestment of $27 million during June 2026, reversing the $184.2 million net investment recorded in June 2025.
Rising Divestment Highlights Investor Concerns
The broader fiscal year trend also points to growing caution among international investors.
Total foreign divestment during FY26 reached $450.6 million, compared with $1.75 billion in net foreign investment during the previous fiscal year.
The increase in capital outflows reflects ongoing concerns over global economic conditions, domestic financial challenges, exchange rate risks, and investor assessments of Pakistan’s economic outlook.
For Pakistan, sustaining higher levels of foreign direct investment remains essential for strengthening foreign exchange reserves, supporting exports, creating employment, and driving long-term economic growth.
The latest SBP figures underscore the importance of maintaining macroeconomic stability, implementing structural reforms, and improving the ease of doing business to rebuild investor confidence.
Outlook for Foreign Investment
While Pakistan continues to attract foreign investment in selected industries, the latest data highlights the need for stronger policy consistency and a more predictable investment environment.
If investor confidence improves through continued reforms and economic stability, the country could regain momentum in attracting long-term foreign capital. However, sustained capital outflows and weak FDI could pose additional challenges for Pakistan’s economic recovery and future growth prospects.