Ayesha Saba

Private investment — crucial for job creation, industrial expansion, and innovation — has remained subdued due to persistent macroeconomic uncertainty, policy inconsistency, and structural inefficiencies. These issues are eroding investor confidence and pushing capital into non-productive sectors, pointed out Dr Waqas Ahmed, a development economist at the Centre for Business and Economic Research (CBER).

Speaking to WealthPK, he noted: “High borrowing costs, driven by historically elevated interest rates, have discouraged long-term investment, particularly among SMEs, which form the backbone of economy.” He stressed that while inflation has somewhat declined in recent months, the overall policy environment remains restrictive for private capital formation.

“Policy inconsistency, especially in tax administration and energy pricing, prevents businesses from making forward-looking decisions. Investors need a stable framework to allocate capital with confidence,” he emphasised. Ahmed warned that Pakistan’s continued failure to attract private investment is already affecting broader socioeconomic outcomes.

“With GDP growth falling behind regional benchmarks and youth unemployment on the rise, the consequences of inaction are mounting.” To reverse this trend, he called for a coordinated policy response that includes reducing the cost of doing business, ensuring policy continuity, simplifying the tax regime, and introducing business-friendly reforms in dispute resolution and contract enforcement.

Talking to WealthPK, an official from Pakistan Business Council (PBC), on condition of anonymity, said the government’s finances are already squeezed owing to rising debt servicing costs and budget deficits, so it must seek private sector participation to bring in investments.

“The state should not be solely responsible for building everything.” The official said the government’s collaboration with the private sector can facilitate the implementation of projects on a larger scale for improved infrastructure quality, expanded services, and sustained economic growth. “The private sector requires three things: rule of law, stable and consistent policies, and effective dispute resolution mechanisms.

Pakistan needs to send a positive signal to the market and adopt a path of progressive growth,” he stated. The PBC official stressed that Pakistan should concentrate on private sector investment, as the future lies there, and instead of relying on state-owned loans for capital, there is a need to attract investment through required policy initiatives.

According to figures by the National Accounts Committee, Pakistan fell short of its 2024-25 investment-to-GDP target of 14.2%, as private sector investment remained largely stagnant. It still improved to 13.8% from last fiscal year’s 13.1%. Fixed investment rose to 12% of GDP, missing the 12.5% target. Private investment stood at 9.1% against a target of 9.7%. Public sector investment reached 2.9%.

Credit: INP-WealthPk