Pakistan’s Foreign Direct Investment (FDI) took a significant hit in February 2025, dropping by 45% year-on-year to $95 million, according to a report released by the State Bank of Pakistan on Monday. This sharp decline in FDI signals growing concerns among investors, largely driven by rising terrorism and security issues within the country. Despite this setback, however, the cumulative FDI for the period from July to February in the fiscal year 2025 showed a notable increase of 41%, reaching $1.618 billion compared to $1.147 billion during the same period last year.
The government of Pakistan has been actively working to attract foreign investments through various initiatives and reforms aimed at creating a conducive investment climate. However, experts argue that the country’s persistent security challenges and political instability have overshadowed these efforts, making it increasingly difficult to attract substantial foreign capital. These rising security concerns are damaging the country’s image as a safe investment destination, thereby deterring potential investors from venturing into the Pakistani market.
Economic analysts caution that under the current conditions of uncertainty, it is unlikely that FDI will see a significant rebound anytime soon. While the government has made strides in policy reforms aimed at attracting foreign investments, the lingering security issues coupled with political turmoil continue to overshadow these efforts. This reality is reflected in the decline in February’s figures, which highlights the challenges Pakistan faces in creating a more stable and appealing investment environment.
Despite the decline in February, the overall FDI for the fiscal year 2025 is showing positive growth. The increase in FDI during the first eight months of the year points to a more favorable investment climate over a longer period, even though short-term fluctuations continue to create obstacles. The total $1.6 billion in foreign investment in the first eight months of the fiscal year includes substantial contributions from key international players.
China remains the largest investor in Pakistan, contributing $662 million of the total FDI inflows. This strong financial backing from China is likely due to the ongoing partnership between the two nations, particularly in infrastructure development under initiatives such as the China-Pakistan Economic Corridor (CPEC). Hong Kong, the United Kingdom, and the United States also played notable roles, with Hong Kong investing $160 million, the UK contributing $167 million, and the US adding $68 million to Pakistan’s foreign investment pool.
However, Pakistan’s FDI levels remain significantly lower compared to its regional counterparts, which raises concerns about its competitiveness in attracting global capital. In addition, the country’s efforts to privatize state-owned enterprises (SOEs) have been hampered by the ongoing political and economic instability, further exacerbating the challenges facing foreign investors.
While the overall FDI figures for the fiscal year show positive growth, the February decline is a reminder of the volatility that still affects Pakistan’s investment landscape. The government will need to address the security concerns head-on and work toward political stability if it hopes to see sustained growth in foreign investment in the coming months.
In conclusion, while Pakistan has made some progress in attracting foreign investment this year, the sharp drop in February highlights the significant barriers that remain. The country must tackle its security issues and create a more stable political and economic environment to boost investor confidence and attract greater foreign direct investment in the future.