Zafar Iqbal
Prime Minister Shehbaz Sharif has been busy. In 2025 alone, he undertook twenty-five foreign trips, pitching Pakistan to investors, attending international forums, and signing agreements worth tens of billions of dollars. By the time February 2026 arrived, he had added five more visits to that tally. The world has heard his pitch. Qatar’s businessmen heard it recently, when the Prime Minister met the Qatari Businessmen Association, led by Chairman Sheikh Faisal bin Qassim al-Thani, and invited them to explore opportunities in infrastructure, agriculture, logistics, energy, technology, and export-oriented manufacturing. The presentation was polished. The macroeconomic indicators, he assured them, were improving. Reforms were underway. Pakistan was open for business.
And yet the money is not coming.
According to data released by the State Bank of Pakistan, total foreign investment declined by a staggering 51 percent in the July-January period of 2025-26, compared to the same period the year before. From USD 1,429 million, it fell to USD 694 million. The Prime Minister has signed Memoranda of Understanding worth USD 25 to 30 billion. The return on all that diplomatic energy, all those air miles, all those handshakes and joint statements, has been a collapse in actual capital inflows. This is not a minor discrepancy. It is a fundamental contradiction at the heart of this government’s economic strategy.
The reason is not difficult to understand. Foreign investors do not make decisions based on signed agreements or ministerial assurances. They make decisions based on risk. Political risk. Economic risk. Regulatory risk. In Pakistan, all three remain stubbornly high. This is not a subjective judgment. It is the verdict of the three major international rating agencies, none of which has ever rated Pakistan as investment grade. Pakistan’s credit rating has oscillated, over the years, between non-investment grade, highly speculative, and outright junk status. That is the signal the global investment community receives every time it considers putting money into this country. No amount of foreign travel can override that signal.
The government established the Special Investment Facilitation Council in June 2023, a body designed to cut through bureaucratic delays and attract large-scale foreign capital. It operates at the federal and sectoral levels, with representation from both military and civilian administrations at federal and provincial tiers, intended to ensure swift decision-making. The rationale was sound. Pakistan’s bureaucratic gridlock has historically been a major deterrent for foreign investors. Swift approvals, coordinated decision-making, and high-level political commitment were meant to change that narrative. The SIFC has produced activity. It has not yet produced investment.
There is a broader economic picture worth examining. The government insists that macroeconomic data has improved. GDP growth is showing movement. The large-scale manufacturing sector has recorded visible improvement. These claims are not entirely without foundation. Pakistan did emerge from a genuine crisis, and stabilisation has been achieved, however fragile. But the story is more complicated than the official narrative suggests.
The large-scale manufacturing sector itself has been raising alarms. Industry leaders have been pressing the government to reverse some of its contractionary policies, pointing to the recent exit of multinational companies and the closure of domestic factories as evidence of a deteriorating industrial environment. This is not minor background noise. When manufacturers are shutting down and multinationals are leaving, it speaks to the lived reality behind the headline numbers.
The government’s hands are tied, and it knows it. The IMF programme, which Pakistan desperately needs to maintain, comes with strict conditions. The Fund has explicitly prohibited the government from extending the kind of monetary and fiscal incentives that Pakistan has historically used to stimulate productive sectors. The IMF’s argument is principled: decades of intervention in price setting for agricultural commodities, fuel, power, and gas, combined with high tariff and non-tariff protections, distorted the playing field. Certain groups and sectors were favoured at the expense of genuine competition. Industries became permanently dependent on state support, never graduating from infancy, never becoming efficient. The incentives, the IMF concluded, weakened competition and trapped resources in chronically inefficient enterprises.
That diagnosis may be accurate. But the prescription has its own consequences. Contractionary monetary and fiscal policies, maintained under IMF diktat, are squeezing the economy at precisely the moment when it needs room to breathe. The government cannot lower interest rates to stimulate investment without IMF approval. It cannot offer tax incentives to attract industry. It cannot subsidise energy costs for manufacturers. It is operating with one hand tied behind its back, presenting itself to the world as a liberalised, reform-minded economy while simultaneously being unable to offer investors the practical incentives they expect.
There is also a data problem. The IMF itself has acknowledged important shortcomings in Pakistan’s data collection for sectors accounting for around a third of GDP. There are issues with the granularity and reliability of Government Finance Statistics. This matters enormously. If the economic data is unreliable, then the confident claims about improving macroeconomic indicators must be treated with some caution. Investors know this. They have their own analysts. They do not simply accept official figures.
Pakistan’s geopolitical position has, however, genuinely shifted. As the only nuclear-armed Muslim nation, Pakistan has found itself in a new kind of demand, particularly as Muslim countries grow increasingly anxious about Israel’s regional ambitions and the broader security architecture of the Middle East. Prime Minister Sharif has positioned Pakistan as a security guarantor of sorts, and that positioning carries real diplomatic weight. It has opened doors and deepened relationships with Gulf states in ways that previous governments could not achieve.
That geopolitical leverage could be used more creatively. The most pragmatic path forward, given the current constraints, may lie not in attracting new investment through further MoUs, but in negotiating debt write-offs with friendly nations. Pakistan’s debt burden is suffocating. Domestic and external borrowing consumes fiscal space that could otherwise fund development. If the government’s improved geopolitical standing can be converted into debt relief rather than just investment pledges, the macroeconomic fundamentals would genuinely improve. Reduced debt servicing would ease the fiscal position. A lighter debt load would reduce reliance on IMF programmes with their restrictive conditionalities. The economy would have room to grow.
Until the economy is genuinely booming, foreign capital will remain elusive. Investors follow growth, not promises. Pakistan has been making promises for a long time.
