Pakistan’s investment-to-GDP ratio remains structurally weak at 13.8% in FY2025, far below regional peers and still short of its own FY2022 peak of 15.6%, raising concerns about the country’s long-term growth trajectory despite macroeconomic stabilisation. In comparison, Bangladesh — despite a turbulent 2025 — maintained an investment ratio of 22.4%, while India and Vietnam continue to sustain levels above 30%, underscoring Pakistan’s position as the lowest-investing major economy in Asia.
Although the current hybrid and multiparty governance arrangement has achieved a degree of macroeconomic stability, analysts and industry leaders argue that investor sentiment and capital formation have not followed. Structural bottlenecks persist, and business representatives say recent institutional reforms have yet to produce measurable gains in project execution or private sector expansion.
Executives report that establishing an industrial project still requires approximately 25 regulatory permissions across federal and provincial authorities. While a high-level investment facilitation council was created to function as a single-window platform aimed at reducing red tape, senior corporate figures privately acknowledge disappointment with its performance. Though the council’s leadership is widely described as disciplined and execution-oriented, business groups suggest that this rigidity has limited innovation in investment strategy and global investor outreach.
Pakistan has largely continued promoting conventional, legacy project proposals, often resulting in memoranda of understanding rather than binding agreements. Analysts note that pitches have centered on traditional sectors such as oil refining, even as major capital-exporting economies including Saudi Arabia and the United Arab Emirates pivot toward diversified and renewable-linked industries. This mismatch has weakened Pakistan’s competitiveness in attracting modern industrial capital.
Maryam Ayub, Research Economist at the Policy Research Institute of Market Economy (PRIME), described Pakistan’s investment ratio as structurally disconnected from the region. She argued that even economies facing shocks maintain higher capital formation levels, suggesting deep domestic constraints rather than temporary cyclical weakness. Pakistan’s ratio fell from 15.6% in FY2022 to 13.1% in FY2024 before only marginally recovering to 13.8% in FY2025. By contrast, India sustained investment around 32–35% of GDP, Vietnam around 30–33%, and Bangladesh historically near 30% despite its recent dip.
Economists warn that maintaining investment below 15% of GDP effectively caps Pakistan’s growth potential. Historically, Asian economies that achieved sustained industrialisation maintained investment ratios above 25–30%, enabling productivity improvements and export expansion. Without such capital intensity, output growth remains constrained.
Banking sector data from 2025 illustrates another structural imbalance. Government borrowing dominated credit flows throughout the year, ranging between Rs30 trillion and Rs36 trillion per month, compared with Rs9.5–10.9 trillion allocated to the private sector. At several points, sovereign borrowing exceeded private credit by more than three times, reflecting entrenched fiscal dominance rather than short-term crowding-out dynamics. Economists argue that banks prefer lending to the government because it is risk-free and profitable, leaving industry comparatively underfinanced.
Forward-looking indicators reinforce caution. The Overall Business Confidence Index declined from 57.7 in August to 53.0 in November before edging up slightly to 53.4 in December, signalling subdued optimism and deferred investment decisions. Export performance also reflects structural constraints. Shipments fell from $2.85 billion in October to $2.32 billion in December before rebounding to $3.06 billion in January 2026, while imports remained elevated between $5–6 billion, sustaining wide trade deficits.
Foreign direct investment reached $2.49 billion in FY2025, recovering gradually from $1.9 billion in FY2022. However, profit repatriation surged to $1.79 billion in FY2025, limiting net capital retention. At roughly 0.6–0.7% of GDP, FDI remains marginal, meaning domestic public and private investment accounts for the overwhelming majority of total capital formation.
High industrial energy tariffs relative to competing hubs such as Bangladesh, alongside layered taxation that includes corporate tax, advance tax and multiple withholding levies, continue to elevate compliance costs and policy unpredictability. Analysts argue these structural burdens suppress long-term capital commitments.
Taken together, subdued investment ratios, government-dominated credit allocation, uneven export growth, declining business confidence and regulatory complexity suggest a broader risk of stabilisation without growth transmission. Economists caution that if investment remains below 15% of GDP, Pakistan’s sustainable growth rate will hover near 3–4%, leaving it structurally behind regional peers despite improved macro indicators.
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