Pakistan Targets $15 Billion with New Private Equity Rules

Pakistan is preparing a national private equity framework designed to attract between $10 billion and $15 billion in tax-neutral investment from domestic and international sources. The initiative aims to address the shortage of long-term risk capital available to businesses and projects, creating new opportunities for investment and expansion.

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Officials intend to finalise the framework within the next two weeks. Once approved, regulatory reforms are expected to take effect without waiting for the next federal budget, while related taxation measures are planned for the Finance Bill for fiscal year 2027-28.

The proposal was reviewed at a recent meeting of the prime minister’s committee on the National Private Equity Framework, chaired by Finance Minister Muhammad Aurangzeb.

Pakistan Private Equity Framework Targets Long-Term Investment

The proposed framework seeks to establish clearer rules for private equity funds, investment structures, transparency requirements and investor exits. These measures are intended to provide greater certainty for investors entering and leaving the market.

Pakistan is looking to draw lessons from established private equity regimes in the United Kingdom, the Middle East and India. These markets are estimated to have channelled between $100 billion and $150 billion into companies and projects.

By adapting relevant international practices to local conditions, the government aims to create an investment environment that supports business growth and provides access to long-term financing.

Government Prioritises Domestic Capital Mobilisation

Finance Minister Muhammad Aurangzeb stressed the importance of mobilising domestic savings before relying on large inflows of foreign capital.

The committee examined ways to encourage banks, insurance companies, mutual funds, pension schemes, development finance institutions, corporations and family offices to increase their participation in private equity investments.

The State Bank of Pakistan has already increased the permissible investment limit for a bank in a single private equity fund from 10% to 20%. The change is intended to provide banks with greater flexibility to channel funds into private equity opportunities.

REIT Investment Growth Highlights Potential for Capital Deployment

Officials cited the growth in bank exposure to real estate investment trusts (REITs) as an example of how regulatory changes can help unlock liquidity.

Bank exposure to REITs increased from Rs22 billion in 2021 to more than Rs280 billion, highlighting the potential for institutional capital to flow into investment vehicles when the regulatory environment permits.

The committee also discussed developing a pipeline of commercially viable investment opportunities over the next five to ten years. Potential avenues include acquisitions, business consolidation, new projects and exits by existing investors.

Building this pipeline will be important to ensuring that the proposed framework translates into actual investments rather than remaining a regulatory initiative without sufficient projects to finance.

Tax-Neutral Treatment and Regulatory Safeguards

A key proposal under consideration is to treat private equity funds as pass-through vehicles, meaning taxation would apply at the investor level rather than at the fund level.

The proposed approach is intended to simplify the tax treatment of private equity structures and improve their attractiveness to investors. However, the government is also seeking to ensure that tax incentives encourage genuine investment without creating opportunities for tax arbitrage or regulatory gaps.

Aurangzeb directed officials to examine international models carefully and adapt them to Pakistan’s economic and regulatory circumstances. The taxation measures are expected to be incorporated into the Finance Bill for FY2027-28, distinguishing them from regulatory reforms that are intended to begin once the framework is finalised.

Implementation and Investable Projects Remain Key Priorities

Beyond establishing the rules, the government faces the task of resolving outstanding regulatory issues and identifying projects capable of attracting private equity funding.

The committee’s discussions emphasised the need to connect the proposed framework with commercially viable opportunities, including business acquisitions, consolidation and new investment projects.

A credible pipeline, predictable rules and workable investor exit mechanisms will be important to attracting both domestic and overseas capital.

Outlook: Can Pakistan Unlock $15 Billion in Private Equity?

Pakistan’s proposed private equity framework represents an effort to expand the sources of long-term financing available to businesses and projects. By encouraging institutional investors to participate and providing greater clarity on fund structures, taxation and exits, the government aims to strengthen the country’s investment environment.

The immediate priority is to finalise the regulatory framework, while tax-related changes are scheduled for FY2027-28. Whether the initiative reaches its $10 billion to $15 billion investment ambition will depend on implementation, investor confidence and the availability of commercially viable opportunities.