Pakistan’s economy faces a significant setback as Foreign Direct Investment (FDI) plummeted by 43.3% during the July-December period of fiscal year 2026 (FY26), according to the Finance Division’s Monthly Economic Update and Outlook for January 2026.
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The FDI inflows totaled just $808.1 million, down from $1.424 billion in the same period last year, amid broader challenges including a widened current account deficit and declining exports.
Decline in Key Inflows and Sector Impacts
The report highlights that China remained the top contributor with $422.9 million, followed by Hong Kong at $163.8 million. However, sectors like communications saw massive outflows of $411.4 million, offsetting gains in power ($470.9 million) and financial services ($401.5 million).
Portfolio investments also stayed negative at -$225.1 million, similar to the previous year’s -$221.8 million. Total foreign investment dropped to $207 million from $1.343 billion. In December 2025 alone, FDI turned negative at -$134.7 million, compared to $182.4 million the year before.
Mixed Economic Indicators and Outlook
Despite the FDI slump, positive signs emerged elsewhere. The stock market surged, with the KSE-100 Index rising 64.2% and market capitalization up 49.9%. Remittances grew 10.6% to $19.7 billion, driven by inflows from Saudi Arabia and the UAE.
Inflation eased to 5.6% in December 2025, averaging 5.2% for the half-year, down from 7.2% last year. Large Scale Manufacturing (LSM) expanded by 6%, with strong growth in textiles, apparel, and automobiles. Agriculture showed 2.9% growth in Q1 FY26, aided by higher credit disbursement (up 11.4% to Rs. 1,411.6 billion) and machinery imports (up 21.6%).
The current account deficit widened to $1.174 billion from a surplus last year, with exports down 5% and imports up. Goods exports fell to $15.5 billion, while imports rose to $31.3 billion. Fiscal management improved, yielding a 0.8% GDP surplus for July-November FY26, thanks to 7.8% revenue growth and reduced expenditures.
The report projects inflation at 5-6% in January and a continued current account deficit, but robust remittances and IT exports may mitigate pressures. Prudent policies and structural reforms are expected to sustain growth momentum.