Pakistan’s investment-to-GDP ratio showed a slight improvement in the outgoing fiscal year, rising to 13.8% of the economy’s size. However, this still fell short of the official target of 14.2%, as private investment remained nearly stagnant despite various government initiatives aimed at attracting non-debt creating foreign inflows.
Two years ago, the government established the Sovereign Wealth Fund (SWF) and the Special Investment Facilitation Council (SIFC) to boost investment levels significantly. Unfortunately, both vehicles have so far failed to deliver tangible results. The SWF remains dormant due to legal disagreements with the International Monetary Fund (IMF), while the SIFC has shifted its focus towards addressing domestic investor issues and assisting in policy formulation.
According to provisional data approved by the National Accounts Committee, the fixed investment-to-GDP ratio increased to 12%, up from 11.4% last year but still below the official 12.5% target. Private sector investment inched up to 9.1%, below the targeted 9.7%, while public sector investment rose to 2.9%, assuming full utilization of the Rs1.1 trillion development budget.
Failing to meet investment targets limits the government’s ability to address infrastructure and social sector challenges with its own resources, increasing reliance on external loans for development projects. On a positive note, the savings-to-GDP ratio exceeded its target, rising to 14.1% thanks to an anticipated current account surplus.
The IMF’s recent staff report provides insights into the workings of the SIFC and SWF, projecting foreign direct investment (FDI) at 0.5% of GDP ($2.1 billion), slightly lower than the previous year. The IMF highlighted the need to address restrictive trade policies and tariff structures that create an anti-export bias and hamper private investment.
In response, the government has pledged to amend the Sovereign Wealth Fund law to strengthen its legal framework, governance, and transparency by March 2026. The Fund will be legally defined as a state-owned enterprise (SOE) and governed under the SOE Act, with a narrowed mandate focusing on managing SOEs and mobilizing co-investment in strategic ventures while adhering to strict financial risk-return criteria.
The revised legislation will also enforce international best practices in privatization and procurement, including transparent, competitive processes with mandatory disclosure of beneficial ownership.
For the SIFC, the government assured the IMF that no regulatory or fiscal incentives will distort the investment landscape, and all investments will comply with the standard Public Investment Management framework, ensuring a level playing field for investors.
