title:Pakistan FDI Plunges 43% in H1 FY26 – Key Reasons
ISLAMABAD: Pakistan’s foreign direct investment landscape has taken asignificant hit, with net FDI plummeting 43 percent year-on-year in thefirst six months of fiscal year 2025-26. Official data released by theState Bank of Pakistan reveals that net inflows stood at only $808 millionduring July to December 2025, a stark contrast to the $1,425 millionrecorded in the corresponding period of the previous fiscal year. Thissharp decline raises serious questions about investor confidence and thesustainability of recent economic stabilization efforts. The downturn comesat a time when the government has been actively promoting reforms toattract foreign capital through initiatives like the Special InvestmentFacilitation Council.
The most alarming development occurred in December 2025, when the countryexperienced net outflows of $135 million in FDI, reversing the positivetrend seen in November with a net inflow of $180 million. This sudden shiftunderscores the volatility in foreign investment patterns and highlightshow large-scale transactions can dramatically influence monthly andcumulative figures. Analysts point to specific corporate decisions as theprimary driver behind this reversal, suggesting that isolated events haveamplified the overall negative trajectory. The data-driven reversal hasprompted economists to scrutinize underlying structural challenges thatcontinue to deter sustained foreign participation.
A major contributor to the December outflows was a substantial divestmentof $376 million from Norway in the information technology andtelecommunications sector. This transaction stemmed from the completion ofTelenor Group’s long-anticipated exit from Pakistan, involving the sale ofits assets to Pakistan Telecommunication Company Limited (PTCL). TheNorwegian telecom giant finalized the divestment by the end of December2025, after a protracted regulatory approval process that began with anagreement in December 2023. The exit represents one of the largest foreigndivestments in recent Pakistani telecom history and directly accounts forthe bulk of the monthly outflow.
The Telenor transaction, valued at approximately $493 million on a cash anddebt-free basis, has reshaped the domestic telecom market by consolidatingoperations under PTCL, which is backed by the UAE-based e& group. While thedeal promises enhanced network capabilities and broader service coverage inthe long term through the merger of Telenor Pakistan with PTCL’s Ufonebrand, its immediate impact on FDI statistics has been profoundly negative.Such large-scale exits illustrate how strategic corporate realignments bymultinational firms can overshadow incremental inflows from other sources,creating significant distortions in net investment data.
Despite the headline decline, underlying trends reveal a mixed picture inforeign investment. Certain sectors and countries have continued to showinterest in Pakistan’s market. For instance, inflows from China haveremained relatively robust in energy and infrastructure projects under theChina-Pakistan Economic Corridor framework, although overall figures havebeen insufficient to offset major outflows. Other traditional investors,including those from the United Kingdom, Hong Kong, and the United ArabEmirates, have maintained modest participation in power, financialservices, and communications. However, the dominance of divestments in keysectors like telecommunications has eclipsed these positive contributionsduring the period under review.
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Broader economic factors have compounded the challenges in attracting andretaining foreign direct investment. Persistent macroeconomicvulnerabilities, including exchange rate fluctuations, regulatorycomplexities, and global uncertainties, continue to influence investorsentiment. The State Bank of Pakistan’s efforts to stabilize the currencyand control inflation have provided some reassurance, yet foreign investorsappear cautious amid ongoing political and external risks. Projections frombrokerage firms suggest that full-year FDI for FY2025-26 may hover around$2.5 billion, representing a potential moderation from previousexpectations and underscoring the need for accelerated reforms.
The significant drop in net FDI serves as a critical indicator of thehurdles Pakistan faces in achieving robust economic recovery. Whilegovernment policies aim to streamline investment processes and offerincentives in priority sectors, the recent data emphasizes the importanceof addressing structural impediments and minimizing large-scale capitalrepatriations. Sustained efforts to build investor confidence throughpolicy consistency and improved ease of doing business will be essential toreverse this trend in the coming months.
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