- Pakistan’s stock market and infrastructure sectors boosted by reforms, opportunities and international partnerships
Foreign Direct Investment (FDI) inflows into Pakistan have shown a notable upward trend in recent years, reflecting growing international interest despite the country facing ongoing economic and political challenges.
In fiscal year 2024 (FY24), Pakistan succeeded in attracting US$1.9 billion FDI, marking a 17% increase from US$1.62 billion in FY23. April 2024 witnessed a significant surge, with FDI inflows rising to US$358.84 million, a 172%YoY increase and the highest monthly inflow in over four years.
Sectoral investments: FDI in Oil & Gas Exploration rose by 120% to US$304 million, but FDI in Power Sector down by 11% to US$800 million.
Early FY25 performance: In the first seven months of FY25 (July 2024-January 2025), FDI surged by 56% as compared to the same period in FY24.
Key investing countries
China emerged the top investor with US$568 million in FY24, though this was an 18% decline from the previous year’s US$692 million.
Hong Kong increased investments by 43% to US$359 million.
Britain invested US$268 million, slightly lower from US$270 million in FY23.
International commitments
International Finance Corporation (IFC) plans to invest up to US$2 billion annually over the next decade, focusing on infrastructure, agriculture, and digital sectors.
World Bank announced a US$20 billion Country Partnership Framework with Pakistan, emphasizing clean energy and climate resilience projects.
Saudi Arabia signed 27 memorandums of understanding worth US$2 billion across various sectors and is considering acquiring a 10–20% stake in the Reko Diq copper and gold mining project.
Challenges ahead
Despite the positive trends, Pakistan faces challenges that could impact future inflow of investment, these include:-
Security concerns: Attacks on foreign nationals, including Chinese workers, have raised safety issues for investors.
Political and economic stability: Ongoing political uncertainty and economic volatility continue to pose risks to sustained investment inflows.
Investment in government securities
Lately, the government allowed foreign investors to invest in government securities, as a way to gain exposure to a country’s fixed income market. These securities are debt instruments issued by the Government of Pakistan to finance its fiscal deficit. They include: 1) Treasury Bills (T-Bills) that are of less than one tenor, 2) Pakistan Investment Bonds (PIBs) which range from 3 to 30 years and Sovereign Sukuk which are Shariah compliant. Government securities offer stable returns – being backed by sovereign guarantee, hence low risk.
Investment in PSX
Foreign investment in the Pakistan Stock Exchange (PSX) is facilitated through various mechanisms, offering opportunities for both foreign individuals and institutions to participate in the country’s capital markets.
Foreign investors, including non-resident Pakistanis (NRPs), can invest in securities listed at PSX under the Foreign Portfolio Investment (FPI) scheme. This requires opening a Special Convertible Rupee Account (SCRA) with a bank in Pakistan. The SCRA enables the remittance of funds for the purchase and sale of securities, as well as the repatriation of dividends and capital gains.
Additionally, the Roshan Digital Account (RDA) initiative allows NRPs to invest digitally in PSX through the Roshan Equity Investment platform, streamlining the investment process.
Investment opportunities
Foreign investors can acquire up to 100% ownership in companies across most sectors, except for certain restricted industries. Investments are subject to regulations set by the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP), ensuring transparency and investor protection.
The PSX has been often recognised as one of the world’s best-performing stock markets, attributed to improved macroeconomic conditions and increased foreign investment. Analysts anticipate a significant uptick in foreign investments in 2025, driven by effective economic policies and enhancements in market infrastructure.
The PSX offers a robust platform for investors seeking Shariah-compliant securities, aligning with Islamic financial principles. Over 50% of the companies listed on PSX are deemed Shariah-compliant, providing a diverse range of investment opportunities.
KMI-30 Index comprises the 30 most liquid Shariah-compliant companies listed at PSX. Constituents include most actively traded equities. Besides this there is KMI All Share Index that includes all Shariah-compliant companies listed on PSX, offers a comprehensive view of the Islamic equity market.
For a company to be classified as Shariah-compliant, it must pass several rigorous criteria. The company’s core operations must be halal, avoiding industries like alcohol, gambling, and interest-based financial services. Metrics such as debt-to-total assets, non-compliant income, and illiquid assets are assessed to ensure alignment with Islamic principles.