Pakistan’s foreign direct investment debate has largely focused on one question: how can the government attract more foreign investors? Investment conferences are organised, delegations are received, incentives are offered and investment facilitation institutions are strengthened. These efforts are necessary, but another question receives far less attention: why is Pakistan’s own private sector not playing a much larger role in bringing foreign capital, technology and joint ventures into the country? The issue is not to reduce the government’s role. It is to develop a more balanced model in which government creates the conditions, while Pakistani businesses become active participants in attracting foreign investment.

 Pakistan’s FDI Position

 Pakistan’s latest data show why this question deserves attention. According to the State Bank of Pakistan, net FDI inflows were $1.409 billion during July–April FY2025-26, compared with $2.035 billion during the same period of FY2024-25, a decline of 30.8%. During the period, China remained the largest source of FDI, while the power and financial sectors accounted for a substantial share of inflows. [State Bank of Pakistan, Foreign Investment in Pakistan, latest available data]

 The concern is not simply the size of the FDI number or its year-on-year decline. It is also the composition and breadth of investment. Pakistan needs foreign investment in manufacturing, technology, export-oriented industries, logistics and other productive sectors. The objective should therefore be not merely to attract more foreign capital, but to attract foreign capital that connects with Pakistani businesses and expands domestic productive capacity.

The Private Investment Gap

FDI cannot be considered separately from the strength of the domestic private sector. The World Bank maintains internationally comparable data on gross fixed capital formation by the private sector as a percentage of GDP, providing a useful indicator of private investment activity. [World Bank, World Development Indicators]. The World Bank’s broader assessment of Pakistan’s private sector has identified significant constraints to private investment, including weaknesses in the business environment and factors affecting productivity and competitiveness. [World Bank/IFC, Country Private Sector Diagnostic: Creating Markets in Pakistan], This matters for FDI because foreign companies rarely operate in isolation. They need local suppliers, distributors, financial institutions, logistics providers, professional services and experienced domestic businesses. A stronger private sector therefore increases an economy’s ability to absorb, connect and multiply foreign investment.

Why FDI Quality Matters

Bangladesh provides an instructive comparison. Bangladesh Bank reported net FDI inflows of $1.77 billion in calendar 2025, up from $1.27 billion in 2024. The data also show why headline FDI requires careful interpretation: the total includes equity capital, reinvested earnings and intra-company loans. [Bangladesh Bank, Foreign Direct Investment and External Debt, July–December 2025]. The lesson for Pakistan is important. Policymakers should not assess FDI simply by asking how many dollars entered the country. They should also ask what type of capital entered, where it went, whether it created new........

© The Friday Times