By Abdul Ghani

China remained Pakistan's largest source of foreign direct investment (FDI) during FY2025-26, reinforcing its position as the country's leading investment partner as overall investor confidence strengthened amid improving macroeconomic stability.

According to the Finance Division's Monthly Economic Update & Outlook (July 2026), Pakistan received net FDI of US$2.5 billion during FY2025-26, representing an increase of 4.7% over the previous fiscal year. China accounted for the largest share of these inflows, followed by Hong Kong, the United Kingdom and Switzerland.

The report states that the increase in foreign investment was supported by improvements in Pakistan's macroeconomic fundamentals, including easing inflation, stronger foreign exchange reserves, fiscal consolidation and greater exchange rate stability. These developments contributed to a more favourable investment climate during the fiscal year.

According to the document, Pakistan's external sector also remained broadly stable despite a widening trade deficit. Strong growth in workers' remittances and services exports helped contain external pressures, while foreign exchange reserves improved during the year, strengthening the country's ability to absorb external shocks.

The Finance Division notes that recent financial sector reforms are also intended to support investor confidence. During the year, the government launched the InvestPak digital investment platform to broaden the domestic investor base and enabled eligible retail investors to purchase government Treasury bills through the JazzCash application. It also appointed consortia of international banks to support future sovereign bond issuances in global capital markets.

The report further states that Pakistan's improving macroeconomic performance has received positive recognition from international financial markets. It notes that S&P Global Ratings upgraded Pakistan's long-term sovereign credit rating from B- to B, citing stronger fiscal performance, continued implementation of reforms, improved institutional capacity and higher foreign exchange reserves.

According to the document, the government expects economic recovery to continue during FY2027, supported by prudent macroeconomic management, sustained reform efforts and improving business sentiment. While geopolitical developments and global economic uncertainties continue to pose risks, the Finance Division believes stronger economic fundamentals have enhanced Pakistan's resilience and strengthened its investment outlook.

The report adds that continued foreign investment will remain important for supporting economic growth, expanding productive capacity and strengthening the country's external sector. Maintaining macroeconomic stability and implementing structural reforms are expected to remain central to the government's strategy for attracting higher levels of investment in the coming years.

Credit: INP-WealthPk