FDI in Pakistan has always been a challenging and volatile with inflows remaining much below the narrated potential. However, the last couple of years of economic distress has hit FDI prospects further with net flows weakening even more. FDI has been a weak link in the country’s economy with net flows remaining small, restricted, and undiversified.

While the foreign investment remains much lower compared to the population size and relative peer analysis, some respite has been seen in the net FDI in FY24, especially during the second half of the fiscal year. Monthly net FDI remained higher in Feb, Mar, Apr and May of the ongoing fiscal year versus the same months of the previous three fiscal years (FY21, FY22, and FY23)

FDI during the latest month - May 2024 stood at $271 million, up by 92 percent year-on-year, but down by 25 percent on a month-on-month basis. Looking at the trend going on in the flows over recent months, there has been improvement, especially in March and April this year. April-24 FDI was the highest monthly FDI after 51 months. However, this continues to highlight the weaknesses in the country’s investment landscape with the highest monthly FDI flows in four years was only $359 million.

FDI in 11MFY24 increased by 15 percent year-on-year to $1.73 billion versus $1.5 billion in 11MFY23. China continues to be the largest FDI contributor, despite the decline in its share. FDI in Pakistan continues to remain undiversified and concentrated among a handful of sectors and investing countries. Together with Hong Kong, China’s share in FDI in 11MFY24 stood at was the biggest investor accounting for 30 percent of the total FDI during the period. Together with Hong Kong, the two were responsible for over 40 percent of the net FDI in 11MFY24. The power sector’s share in total FDI was again the largest.