PAKISTAN’S investment crisis, marked by a dismal 13.1pc investment-to-GDP ratio against a regional average of over 30pc, can be resolved but not through piecemeal actions or incentives for favoured investors.

Capital formation cannot by revived simply by doling out regulatory, legislative and policy concessions to a privileged few, while keeping the playing field uneven for the rest. The example of the Special Investment Facilitation Council is instructive in this regard.

More than two years after its creation, the SIFC — a special purpose vehicle with enough authority to effectively override regulations and policies in order to facilitate foreign investment — has delivered less than what was hoped. The irony is that even after recognising the limitations of their approach, policymakers appear determined to persist with it.

Reflecting on the SIFC’s efforts to attract FDI at a Pakistan Business Council conference in Islamabad, its national coordinator hinted at a ‘strategic shift’ in approach. At the moment, the shift appears limited to an acknowledgement that foreign investors will come only when local investors are engaged. Full support was offered to local “sectoral tycoons”, but the SIFC has yet to commit itself to the long-standing structural reforms needed to improve the investment clime.

If anything, Pakistan’s investment crisis is holding back its future, despite the country’s economic potential and abundant business opportunities. Low investment carries serious consequences: it weakens productivity, heightens reliance on imported goods and, in Pakistan’s case, it remains a major driver of recurring balance-of-payment troubles.

Although the economy has stabilised under the IMF programme over the last couple of years, growth cannot be expected to take off unless policymakers start looking beyond short-term fixes and resolutely pursue deep reforms to lift investment to the regional average.

Historical data shows a steady decline in both private and public investment in Pakistan. In contrast, regional economies have consistently expanded private investment in infrastructure and productivity while successive governments in Islamabad relied on consumption-driven growth spurts, instead of addressing structural impediments to capital formation. Even Sri Lanka boasts a significantly higher investment-to-GDP ratio of nearly 23pc.

No country can hope to attract sustained investment by selectively offering incentives to compensate for an uneven playing field marked by policy inconsistency, bureaucratic red tape, opacity, inequitable taxation, weak institutions and regulatory unpredictability.

The recent exit of several multinationals from the country underscores this reality: they did not leave due to lack of business opportunities but because policy and regulatory obstacles made operations increasingly unviable.

Unless the government reforms the investment regime to guarantee every investor — local or foreign, small or large — an equal opportunity to succeed based on their market performance, it will not be able to stem this trend.

Published in Dawn, November 29th, 2025