Governance gap costs billions
Every few years, Pakistan finds itself at the edge of an economic breakthrough that never actually arrives. The country has the geography, youth, market size and increasingly the geopolitical relevance, yet foreign investors remain hesitant, the domestic industry stays frustrated and growth continues to punch well below its potential.
The question being asked more loudly now is not whether Pakistan has the opportunity, but whether its governance machinery is capable of seizing it.
Pakistan Industrial and Traders Association Front (PIAF) Vice Chairman Raja Waseem Hassan, while echoing similar concerns, said the root of the problem lies not in a lack of resources or intent, but in structural dysfunction, weak coordination between federal and provincial governments, layers of bureaucratic obstruction and a persistent habit of looking for short-term fixes instead of long-term solutions. The result, he said, is a governance system that actively discourages the investment Pakistan desperately needs.
The global investment landscape makes this domestic failure harder to justify. Global foreign direct investment (FDI), as per the United Nations Conference on Trade and Development (UNCTAD), rose 14% in 2025 to reach $1.6 trillion, though much of the increase was driven by flows through financial centres. More tellingly, FDI flows to developed economies jumped 43% to $728 billion, while flows to developing economies declined 2%, accounting for 55% of global FDI. Within the developing world, three quarters of least developed countries saw stagnant or declining flows, as the growing concentration of FDI in capital-intensive, technology-driven projects made it harder for poorer countries to compete.
In this scenario, countries that have invested in strong governance frameworks and predictable regulatory environments are pulling ahead, while those still mired in institutional dysfunction are being left further behind. Pakistan is one of those countries as it only managed to get $1.746 billion foreign investment in FY25, as per the State Bank of Pakistan, whereas in the first nine months of FY26, it received just $410.7 million in foreign investment.
Hassan acknowledged that the Special Investment Facilitation Council had made some progress in cutting through red tape and improving coordination between institutions. But the effort has not reached the scale the country requires. "Without consistent policy application, clear accountability mechanisms and an end to sudden reversals in regulatory direction, even well-intentioned reforms will continue to deliver below par," he added.
Apart from foreign investors and large-scale export-oriented industries, medium-scale businesspersons think that the issue is not that Pakistan lacks a strategy on paper as there are several. "The real problem is that every new government, and sometimes even every new minister, feels entitled to rewrite the rulebook," remarked Waseem Tariq Malik, a Lahore-based businessman.
Investors, both local and foreign, have learnt not to trust the fine print. When predictability disappears, capital follows. He added that Pakistan's informal economy, which as per various estimates accounts for nearly 40% of GDP, further limits the government's fiscal capacity to invest in the institutional reforms needed to attract long-term capital.
Pakistan currently ranks 136th out of 182 countries on the Corruption Perception Index and 150th out of 184 on the Economic Freedom Index that signal to potential investors a high-risk environment where doing business remains complicated and unpredictable.
According to the businessman, what makes this moment particularly striking is the broader context. Regional and global shifts, including the realignment of supply chains, the US-Iran tensions reshaping Middle Eastern trade routes and growing interest in South Asian markets, are creating conditions that could work in Pakistan's favour.
Hassan urged the government to begin planning now, specifically for the post-conflict economic landscape that may emerge once the US-Iran standoff eases, so that Pakistani industry is positioned to benefit rather than watch from the sidelines.
Malik, however, added that the message from Pakistan's business community is clear and consistent, ie, fix the foundations, strict accountability for policymakers, stable and transparent regulations and genuine coordination between federal and provincial governments, which are not optional reforms, but are the minimum conditions for economic credibility.
"As regional dynamics shift and new investment opportunities begin to take shape globally, Pakistan cannot afford another cycle of missed chances as the country has heard the diagnosis many times before. What it needs now is the will to act on it," Malik added.