Investors are packing up; Pakistan must ask why | The Express Tribune

KARACHI:

Pakistani citizens and policymakers are rightly excited. Not only is Pakistan getting into the good books of President Trump, but the economy also seems to be moving in the right direction.

Inflation is back in single digits, the currency has remained stable for two and a half years, interest rates are down to 10-11%, industries are finally expanding, remittances are growing phenomenally, and the Pakistan stock market is booming at the 165k level of the KSE-100. These are all great indicators on the surface.

But beneath the optimism lies a troubling undercurrent. Between the lines, there is growing pessimism and a foreign investor exodus. Over the past decade, nearly all foreign banks have exited Pakistan. Just last week, Gillette Pakistan decided to close operations.

Add to that the exits or partial divestments of Telenor Pakistan, Rafhan Maize, Sanofi, Pfizer, Lotte Chemical, VavaCars, TotalEnergies, Shell Pakistan, Uber, Swvl, Microsoft, Virgin Atlantic, and Yamaha Motors, and it paints a sobering picture. These are not isolated incidents tied to a few years of misgovernance, but rather the symptom of a long-term decay in economic policies that has dissuaded global investors. Why are they leaving? Because Pakistan’s economic cycle keeps breaking trust. The answer isn’t singular, but the biggest culprit is Pakistan’s boom-and-bust cycle. The rupee repeatedly sinks to new lows, high interest rates choke growth, and import restrictions strangle both demand and the ability to expand or export.

While law and order has improved drastically over the past decade – except in K-P and Balochistan – these economic shocks have proved decisive in driving investors away.

Meanwhile, some investors are still coming, but mostly from the East. On the flip side, there are success stories. Under CPEC and other bilateral arrangements, Pakistan has welcomed investment from BYD, Changan, Kia, Hyundai, Geely, MG, Mashreq Bank, Aramco, Reko Diq (Barrick Gold), Gunvor, AD Ports, and e& (which acquired Telenor Pakistan).

New entrants from China, the Middle East, and regional players are stepping in. But the overall tilt has become more East-centric, with Western incumbents exiting. Ideally, foreign players should not leave at all or should at least exit on a high note after earning strong profits, transferring technology, generating jobs, exports, and tax revenues.

To retain investors, Pakistan must fix its cost of doing business. The cost has simply become too high. Pakistan needs a credible long-term economic roadmap with statutory protection, so no government can casually change core fiscal rules. That includes reducing corporate tax rates from 35-40% to 22.5-30% over five years, tied to incentives for job creation, exports, and import substitution.

Monetary and exchange rate policy must also be depoliticised: interest rates should remain stable in the 10-12% range for five years, with the SBP offering forward guidance, while the currency should be allowed to depreciate moderately at 4-5% annually to balance external accounts.

Only stability, not tinkering, will build investor confidence. Pakistan must also focus on primary and current account surpluses, embedding these commitments in a higher-level statutory or constitutional framework, with penalties for governments that derail them. A country of 250 million cannot create enough jobs through the public sector. Nor can it afford to keep tens of millions out of school and hundreds of millions away from respectable employment. If left unaddressed, Pakistan risks losing an entire generation.

By 2047, Pakistan must be educated, developed, debt-free, export-driven, and led by domestic private investors. Everyone must pay fair taxes, wealth must be more equitably distributed, and governance must be restructured to keep capital at home. People must feel confident to live, invest, and travel here.

The steady exit of foreign investors requires an emergency response: a dedicated cabinet committee, a revamped SIFC agenda, and even a new ministerial-level team focused solely on attracting and retaining FDI in value-added sectors.

The writer is an independent economic analyst