KARACHI: Foreign direct investment (FDI) fell by 33 per cent to $1.195 billion during the first eight months of the current fiscal year (FY26), with inflows largely dominated by China.

It is important to note that the State Bank’s data reflects the pre-war situation and does not capture the potential impact of the conflict on foreign investment. Although Pakistan is not directly part of the Gulf war, its economic repercussions have already begun to affect the country. The 33pc decline in FDI — even before the war began on Feb 28 — is seen as disappointing for the government, which has been seeking to attract large-scale foreign investment across sectors ranging from industry and agriculture to services.

According to the State Bank, FDI in February stood at $213 million, of which $140m, or 66pc, came from China. During July-February FY26, total FDI amounted to $1.195bn compared to $1.793bn in the same period last fiscal year — a decline of $598m, or 33.3pc.

China’s contribution stood at $635m, accounting for 53pc of the total inflows, highlighting Pakis­tan’s heavy reliance on Chinese investment. Arab countries, currently facing war-related pressures, did not respond to Pakistan’s investment incentives even before the conflict began.

After China, the highest inflows came from Switzerland with $141.4m, followed by the UAE with $139m and the UK with $74m. Analysts believe Pakistan may not receive significant investment from the Middle East in the coming months, or even years, as the war could have long-term economic consequences for those countries.

Investment from other regions also remains weak. While the UK has been among the few notable contributors, the economic uncertainty in Europe may limit its appetite for risk, particularly when investing in a country located close to conflict-hit Iran.

Published in Dawn, March 17th, 2026