Cautious investors, unmoved fundamentals

Foreign investors are not suddenly bullish on Pakistan, but they are noticeably less anxious than they were two years ago. The latest OICCI Perception & Investment Survey suggests a shift from “panic mode” to something closer to “let’s wait and see.”

Inflation has eased, the rupee is no longer swinging wildly, and foreign exchange restrictions—which once brought business operations to a standstill—have been relaxed. These changes matter. They reduce the day-to-day uncertainty that makes firms nervous. As a result, 73 percent of OICCI members say they would now recommend Pakistan as an investment destination—up from 61 percent in 2023.

But recommending Pakistan is not the same as being excited about it. Much of this improvement comes from the country stepping out of a crisis, not stepping into a compelling new opportunity.

When investors compare Pakistan to the region, the picture becomes clearer. Pakistan does look marginally better today relative to Bangladesh, the Philippines, Vietnam, and Indonesia than it did in 2023.

But this is faint praise. Those countries are improving too, and from a stronger base in many cases. Investors still see Malaysia, the UAE, and China as operating in a completely different league.

The comparison with China especially highlights the gap: strong policy coordination and predictable rules on one side; fragmentation and abrupt shifts on the other. For many global headquarters, Pakistan is still a market with potential—but with too many caveats.

The real test is in long-term, large-scale investment—projects worth over USD 500 million. Here, Pakistan’s position has actually worsened. It has slipped from 7th to 9th out of 10 regional destinations.

And when investors are asked why they might invest—whether to reach a big market, exploit natural resources, or build efficiency—Pakistan ranks 9th across all categories, exactly where it was two years ago. This kind of freeze is meaningful. It shows that stabilising inflation or the exchange rate, while helpful, does not fix deeper issues.

Pakistan’s regulatory unpredictability, slow dispute resolution, overlapping jurisdictions, and abrupt policy decisions continue to overshadow its market size and demographic advantage.

Despite this, the IT and Digital sector remain a rare area where investors genuinely see opportunity. For the third consecutive survey, it ranks as the most promising sector for future investment.

But even here, optimism is conditional. Investors repeatedly point out that the opportunity will only translate into real capital if policies stop shifting, taxes stop changing mid-stream, and the government provides a clearer ecosystem for exports and digital payments. In other words: the IT sector could grow, but only if the policy environment stops getting in its way.

Everyday business challenges also tell a more grounded story. The rising tax burden has jumped to the top of investors’ concerns. Companies are not just worried about high taxes—they are frustrated by the speed with which tax rules change, the discretion involved in enforcement, and a refund system that is slow to the point of being dysfunctional.

With refunds often taking more than two years, firms feel as though they are involuntarily lending money to the state. It’s the kind of experience that makes foreign headquarters hesitant to expand operations in Pakistan.

Policy inconsistency comes up again and again. Whether it is pharmaceuticals pricing, energy tariffs, import rules, or sector-specific incentives, investors struggle with the feeling that the ground can shift without warning. This makes long-term planning nearly impossible. It also weakens the credibility of otherwise good initiatives, because firms are never sure how long a policy will last.

Costs continue to rise across the board—energy, wages, raw materials. That’s not unique to Pakistan, but the lack of a competitive industrial strategy makes these pressures more damaging here.

Export sectors still face energy prices well above those in neighbouring countries, despite years of warnings. Borrowing remains expensive. These pressures collectively erode competitiveness and discourage new investment.

Contract enforcement is another long-standing Achilles’ heel. More than half of companies say commercial disputes take over five years to resolve. Even when the legal framework is technically adequate, slow and unpredictable enforcement means firms simply avoid relying on the courts.

The private sector’s growing support for commercial courts and international arbitration says less about optimism and more about frustration with the current system.

All of this shapes investment behaviour. Only 23 percent of companies plan to increase investment in the next five years. The majority expect to hold steady. This is not a vote of confidence—it is a sign that firms are willing to continue operating but see few reasons to expand meaningfully unless structural issues are addressed.

The Special Investment Facilitation Council stands out as a rare area where sentiment is strongly positive. Ninety-six percent of respondents believe SIFC can improve the investment climate. But even here, expectations are modest. Most predict that SIFC-led improvements will bring in less than USD 10 billion of additional FDI.

The private sector also wants a seat at the table—nearly all respondents say existing investors should be formally included in SIFC’s policy board. Without that voice, even well-intentioned reforms risk missing the practical realities businesses face.

Taken together, the survey offers a grounded conclusion: Pakistan has stabilised, but it has not yet improved enough to shift how foreign investors think about the country in a material way.

The crisis has passed, but the fundamentals have not been restructured. Investors acknowledge the progress, but they remain unconvinced that Pakistan has broken from its pattern of short-term stabilisation followed by long-term drift.

If Pakistan wants to convert today’s cautious optimism into tomorrow’s real investment, it will need more than temporary fixes. It will need policies that are predictable, enforcement that is reliable, taxes that are rational, and institutions that act consistently across political cycles.

Until then, the investment story will remain the same: hopeful potential, hindered by avoidable obstacles.