Pakistan’s economy faces persistent structural challenges that have hindered investment and economic growth for decades. The investment-to-GDP ratio has declined to 13.1% in FY24, marking its lowest level in 64 years, while neighboring economies such as India, Bangladesh, and Vietnam maintain ratios above 30%. This disparity highlights deep-rooted systemic issues that discourage productive capital inflows while fostering speculative and rent-seeking activities. Despite repeated efforts to attract foreign investment, fundamental barriers remain entrenched, limiting Pakistan’s economic potential.

The country’s approach to investment promotion often contrasts starkly with the realities on the ground. While officials present investment portfolios and reform pledges abroad, structural inefficiencies persist, reinforced by bureaucratic hurdles, regulatory unpredictability, and a taxation framework that is widely seen as a deterrent rather than an enabler of business growth. Investors frequently cite concerns over complex tax policies, legal uncertainties, and shifting economic regulations, making long-term planning difficult.

The recent hesitancy of Saudi Arabia—historically one of Pakistan’s closest economic partners—to proceed with planned investments in May 2024 underscores these challenges. This decision reflects broader concerns about the investment climate, regulatory transparency, and policy consistency in Pakistan, even for allies with strategic interests in the country.

A critical factor contributing to this environment is the state’s excessive reliance on revenues generated from taxation and borrowing, rather than fostering private sector-led growth. More than 60% of federal resources are allocated to debt servicing, leaving limited fiscal space for infrastructure development, industrial support,........

© Khaama Press