Pakistan's investment ratio has slightly improved to 13.8% of the economy's size in the outgoing fiscal year but remained below the official target, as private investment stayed almost stagnant despite the government's multi-front efforts to attract non-debt creating foreign inflows.
The Sovereign Wealth Fund remained dormant, while the Special Investment Facilitation Council's (SIFC) efforts also proved fruitlessboth vehicles had been set up two years ago to significantly boost investment.
According to figures approved by the National Accounts Committee, investment as a percentage of the economy missed the official target again this fiscal year.
Against a target of a 14.2% investment-to-GDP ratio, it remained at 13.8%, according to provisional figures. These will be officially released next Sunday at the launch of the Economic Survey of Pakistan.
Still, the 13.8% figure marks an improvement from the previous year, when the ratio fell to a five-decade low of 13.1%.
The Pakistan Democratic Movement (PDM) government had established the SIFC through an Act of Parliament to raise investment levels and remove growth bottlenecks. Despite year-long efforts, these have not yet produced tangible results.
The government also established the Pakistan Sovereign Wealth Fund (PSWF) to attract investment from the Middle East. However, it remains non-functional due to disagreements with the International Monetary Fund (IMF) over its legal framework.
SIFC has now shifted its focus toward resolving issues faced by domestic investors and helping the government formulate and implement economic policies.
The fixed investment-to-GDP ratio also rose to 12%, up from last year's 11.4%, though still short of the official 12.5% target set in the previous budget.
Private sector investment inched up to 9.1% of GDP, below the targeted 9.7%.
The public sector investment-to-GDP ratio rose to 2.9%, contributing to the overall improvement. This assumes that the full Rs1.1 trillion development budget will be spent.
Failure to meet the investment target limits the government's ability to address deteriorating infrastructure and social sector challenges using its own funds, resulting in increased reliance on loans for development.
The savings-to-GDP ratio surpassed the official target of 13.3% and surged to 14.1% due to an anticipated current account surplus in this fiscal year.
The IMF last week released its staff report, offering a detailed look into the workings of the SIFC and the Sovereign Wealth Fund. IMF projected foreign direct investment (FDI) for the fiscal year at 0.5% of GDPslightly lower than last year. In absolute terms, FDI is estimated at $2.1 billion this year.
The IMF said that addressing the anti-export bias caused by restrictive trade policies and an ineffective tariff structure is central to unlocking Pakistan's competitiveness and attracting private investment.
The government has again assured the IMF of its intent to amend the Sovereign Wealth Fund law and ensure transparency within the SIFC.
According to Pakistan's commitment, "By end-March 2026 we will, in consultation with Fund staff, enact the necessary legal amendments to the PSWF Act and other legislation to strengthen the PSWF's legal framework, governance arrangements, and transparency and accountability mechanisms."
To end ambiguity surrounding the Fund's legal standing, the government has assured the IMF that it will be defined as a state-owned enterprise (SOE) and made subject to the SOE Act.
Other legal changes will also be made in the law to ensure the SWF's governance structures correspond with a holding entity's nature and mandate, and narrow its mandate to holding and managing SOEs on behalf of the state and creating value through their operational and financial improvement.
The law will be amended to limit the wealth fund's role to attract foreign direct investment by facilitating and mobilising co-investment in strategic commercial ventures that generate financial returns in line with the SWF's investment mandate, while ensuring that the SWF and any sub-funds are neither the sole investors nor the first loss in any project, and that any investment is only motivated by financial risk-return considerations, according to the IMF report.
The IMF report added that the revised legislation will ensure that all privatisation and procurement processes follow rules set by the SWF's Board. These rules must align with international best practices, ensuring open, transparent, competitive, and non-discriminatory procedures. Minimum disclosure requirements will be established for every stage of the process, including beneficial ownership.
These rules will operate independently of government regulations but will generally align with official guidelines for divestment and procurement.
Regarding the SIFC, the government assured the IMF that it would take additional measures to promote investment, maintain competitive neutrality, and ensure a level playing field.
"We commit to ensuring that the SIFC does not propose, nor that the government provides, regulatory, spending, or tax-based incentives of any sort, or any guaranteed returns, or take any other action that could distort the investment landscape," the report stated. It added that all SIFC-led investments will follow the standard Public Investment Management framework.
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