Key Takeaways
- Pakistan's economy has stabilised, with inflation and foreign exchange reserves recovering.
- Foreign direct investment has improved, but remains selective, with financial and power businesses leading the inflows.
- Local businesses and foreign investors face significant obstacles, including taxes, access to finance, and corruption.
Pakistan's economy has stabilised, with inflation and foreign exchange reserves recovering. However, these improvements have not translated into a corresponding sense of opportunity for businesses or households. The central weakness of Pakistan's recovery is the lack of job creation, investment, and rising incomes.
In the first two months of the fiscal year 2027, foreign direct investment (FDI) reached $494.5 million, up 24.1% from the same period last year. August alone recorded $315.9 million. While these numbers are encouraging, they need to be viewed in the context of the low base effect from the previous fiscal year, when annual FDI remained modest.
The recent improvement in FDI remains selective, with financial and power businesses accounting for a significant share of the inflows. There is still limited evidence of a broad investment wave flowing into manufacturing, exports, and new productive capacity. Foreign investors had faced delays in repatriating profits and dividends during the foreign-exchange shortages, creating an uncomfortable memory for international investors about the ease of taking legitimate returns out of Pakistan.
The National Citizen Survey 2026, conducted by the Institute for Public Opinion Research (IPOR), offers a revealing domestic perspective. Based on 5,155 face-to-face interviews across all four provinces, the survey found that 91% of respondents considered it difficult to start or run a business in Pakistan. Taxes were identified as the biggest obstacle, while access to finance, corruption and bribery, high energy costs, and government regulation also featured prominently.
For new foreign investors, the question is not only whether they can bring capital in, but whether they can confidently take legitimate returns out in the future. The perception of the business environment becomes crucial. A foreign investor considering a factory, technology operation, or export platform in Pakistan is effectively asking the same questions as a local entrepreneur: how predictable is taxation, how costly is energy, how easily can capital be accessed, how much regulatory friction will be encountered, and how reliably will contracts and rules be enforced?
The recently released Trade and Development Report 2026 by the United Nations Conference on Trade and Development (UNCTAD) projects global economic growth to slow to 2.6% in 2026 and 2.7% in 2027, from 2.9% in 2025. The report finds that governments increasingly use industrial, trade, financial, and technology policies to pursue economic and national security objectives. Access to markets and the ability to move into higher-value activities now depend more heavily on technology, finance, and geopolitics.
Developing countries will be affected unevenly by the reconfiguration of global trade. Some may emerge as alternative suppliers or intermediary hubs, but sustaining these gains will require stronger productive, regulatory, and institutional capabilities. Global trade reached a record $35 trillion in 2025. Higher trade values in 2026 are being driven by rising prices amid the energy shock. Trade patterns are also shifting, with trade between China and the United States falling by more than 20% since 2024, while East Asia has expanded trade with both China and North America.
Export controls, investment screening, and supply-chain conditions are making it harder for new entrants to access strategic sectors. Asia remains the most dynamic exporting region, with intra-Asian merchandise trade rising markedly. South-South trade is also deepening as China and other major Asian exporters increase shipments to emerging markets. On the import side, Asia is expected to record the
