Pakistan's foreign direct investment has fallen to its lowest level since 2023, with data showing a 34% year-on-year decline to just $1.64 billion over the past 12 months. According to reports from Business Standard, this represents a significant drop in investment inflows for the country of 250 million people. The decline comes as business leaders complain of erratic tax policies that are driving away foreign investment, with major multinational companies packing up operations since the economic crisis in 2022.
Major multinational companies have departed Pakistan since 2022, including Procter & Gamble Co., the world's largest consumer goods maker, which indirectly created thousands of jobs in Pakistan, and Telenor ASA, a top taxpayer which invested $2 billion over two decades. As reported by Business Standard, TotalEnergies SE, Shell Plc, and Uber Technologies Inc. have also left, while other foreign companies including Microsoft Corp. have handed over to local partners or scaled back operations. The pharmaceutical sector has been particularly badly hit, with policy uncertainty creating a trust deficit between company executives and the government.
Businesses currently pay up to 44% tax in Pakistan, made up of a baseline corporate tax rate of 29% and additional charges including employee protection funds and progressive super tax. According to Business Standard, multiple executives from departing companies cited severe and inconsistent tax policy as the dominant reason driving away business. The super tax, imposed on highest-earning businesses, was first introduced as a one-off emergency tax but was repeatedly extended, with a legal challenge against it earlier this year failing despite government rate reductions in the latest budget.
Despite the FDI decline, Pakistan's external account remains relatively healthy due to record remittances of $41.6 billion from overseas Pakistanis in the last fiscal year, accounting for more than 9% of GDP. As reported by Business Standard, this cash flow has long outpaced exports which have barely moved from around $30-$32 billion. However, critics argue that the remittance cushion reduces pressure on policymakers to make tough decisions for long-term economic sustainability, such as export and FDI growth.
Finance Minister Muhammad Aurangzeb's adviser Khurram Schehzad attributed the exits to companies changing global strategies, noting 79 new foreign entrants between 2023-2025 compared with 19 exits. According to Business Standard, Pakistan is currently enjoying one of its strongest diplomatic positions in years, having helped broker peace talks between the US and Iran while courting investment in mining, oil and crypto sectors. However, the country's key weakness remains its reliance on imports, particularly for energy, leaving it dangerously exposed to global price fluctuations.
