Pakistan’s FDI plunges 43% in H1 FY26 even as PSX surges over 60%

Foreign direct investment into Pakistan declined sharply by 43.3% during the first half of fiscal year 2025–26, even as equity markets surged and key macroeconomic indicators showed mixed trends, according to the Finance Division’s Monthly Economic Update and Outlook for January 2026.

FDI inflows fell to $808.1 million in July–December FY26 from $1.424 billion in the same period last year. December alone recorded a net outflow of $134.7 million, compared with inflows of $182.4 million a year earlier. Portfolio investment remained negative at $225.1 million, broadly unchanged from last year’s outflows.

Despite weak capital inflows, Pakistan’s stock market posted strong gains. The benchmark index rose 64.2% year-on-year, market capitalisation increased by 49.9%, and company incorporations grew 28.7%. As of January 26, 2026, market capitalisation stood at Rs21.16 trillion.

On the external front, exports declined 5% in the first half of FY26, while imports rose to $37.8 billion from $33.5 billion a year earlier. The current account shifted to a deficit of $1.2 billion, compared with a surplus of $0.96 billion in the same period last year, pushing the trade deficit to $17.6 billion.

Remittances provided partial relief, rising 10.6% to $19.7 billion in July–December, led by inflows from Saudi Arabia and the UAE. December remittances reached $3.59 billion, up 16.5% year-on-year. Foreign exchange reserves stood at $21.3 billion as of January 16, including $16.1 billion held by the central bank.

Domestic activity showed improvement in selected sectors. Large-scale manufacturing expanded 6% during July–November, with growth recorded across textiles, food, automobiles, electrical equipment and petroleum products. Cement dispatches rose 9.7% to 25.8 million tonnes, driven by stronger domestic demand.

Agriculture grew 2.9% in the first quarter of FY26, supported by livestock growth of 6.3%, although crop output remained under pressure due to lower cotton and fodder production. Agricultural credit disbursement increased 11.4% to Rs1.41 trillion, alongside higher imports of farm machinery.

Fiscal performance improved, with the government posting a consolidated surplus of 0.8% of GDP in July–November FY26, compared with a deficit last year. Gross federal revenues grew 7.8%, while total expenditure declined 6.2% due to lower mark-up payments. A primary surplus of 2.8% of GDP was recorded during the period.

Money supply expanded 3.7% in the first half of FY26, while private sector credit reached Rs578 billion amid rising demand for fixed investment loans. The Finance Division said easing inflation, stable financial conditions and improving industrial activity could support growth, though weak exports, subdued investment and external imbalances remain key risks.