KARACHI: Foreign direct investment (FDI) plunged by 43 per cent during the first half of the current fiscal year, denting the government’s hopes of attracting overseas capital amid growing regional uncertainty.

Data for July-December FY26 shows total FDI at $808 million, down from $1.425 billion in the corresponding period last year.

Analysts attribute the sharp fall to heightened geopolitical risks, including tensions with Iran, the brief conflict with India, and the broader Iran-Israel and US-Iran stand-off, which have made investors more cautious.

The fragile sentiment was particularly evident in December, when net FDI turned negative. While inflows amounted to $322.5m during the month, outflows stood at $457.3m, resulting in a net outflow of $135m. Market observers warned that any escalation involving Iran could disrupt Pakistan’s trade flows and further undermine investor confidence.

China remained the largest contributor, investing $423m during the six-month period, followed by Hong Kong with $164m. Together, the two accounted for 73pc, or $587m, of total FDI. Other notable inflows came from the United Arab Emirates ($112m) and Switzerland ($107m).

Heightened regional tensions weigh on investor sentiment

The subdued investment climate has also been reflected in the government’s inability to attract foreign buyers for Pakistan International Airlines. Officials have recently expressed optimism about potential exports of locally produced fighter jets to ease external liabilities, though no firm agreements have yet been finalised.

Published in Dawn, January 20th, 2026