From stabilisation to growth

Pakistan may have stabilised its economy, but it has yet to make that stability work. Inflation is no longer at crisis levels, external pressures have eased and foreign exchange reserves have recovered. Yet these improvements have not translated into a corresponding sense of opportunity for businesses or households. For the young graduate, the small manufacturer or the entrepreneur trying to expand, macroeconomic stability remains a distant statistic unless it creates jobs, investment and rising incomes.

This is the central weakness of Pakistan's recovery. Stabilisation was necessary, but it was never meant to be the destination. It was supposed to create breathing space for the harder work of expanding production, attracting investment, increasing exports and creating employment. The question now is whether that breathing space is being converted into a stronger economic base. There is reason for some optimism. Foreign direct investment has improved in the opening months of FY27. Net FDI reached $494.5 million during July-August, up 24.1% from $398.6 million a year earlier, while August alone recorded $315.9 million. These are encouraging numbers. But they need to be viewed in the backdrop of the low base effect in FY26, when annual FDI remained modest. More importantly, the recent improvement remains selective, with financial and power businesses accounting for a significant share of inflows. There is still limited evidence of a broad investment wave flowing into manufacturing, exports and new productive capacity.

Foreign investors had faced delays in repatriating profits and dividends during the foreign-exchange shortages, creating an uncomfortable memory for international investors about the ease of taking legitimate returns out of Pakistan. Those restrictions have since eased as foreign-exchange availability improved, with the recent profit and dividend repatriation data showing repatriation of $557.6 million in the first two months of FY27. But while restoring repatriation is important for rebuilding confidence, the earlier experience is likely to remain part of investors' assessment of Pakistan. For new foreign investors, the question is therefore not only whether they can bring capital in, but whether they can confidently take legitimate returns out in the future.

And this is where the perception of the business environment becomes important. The recently released National Citizen Survey 2026, conducted by the Institute for Public Opinion Research (IPOR), offers a revealing domestic perspective. Based on 5,155 face-to-face interviews across all four provinces, the survey found that 91% of respondents considered it difficult to start or run a business in Pakistan. Taxes were identified as the biggest obstacle, while access to finance, corruption and bribery, high energy costs and government regulation also featured prominently. The significance of these findings goes beyond the difficulties faced by Pakistani businesses. A foreign investor considering a factory, technology operation or export platform in Pakistan is effectively asking the same questions as a local entrepreneur: how predictable is taxation, how costly is energy, how easily can capital be accessed, how much regulatory friction will be encountered and how reliably will contracts and rules be enforced? The difference is that a foreign investor can choose another country.

A factory is a long-term commitment. An investor therefore looks beyond the next year's inflation rate or the latest increase in foreign-exchange reserves. The questions are more fundamental: will the tax regime remain predictable? Can electricity be obtained at a competitive price? Can contracts be enforced? Can profits be repatriated when due? Will regulations remain broadly consistent? These are not peripheral considerations; they determine whether an investment is viable.

Pakistan therefore needs to move beyond improving financial indicators towards improving the conditions under which businesses actually operate. A tax refund delayed for months is not simply an administrative inconvenience. It is working capital trapped outside a business. Expensive energy is not merely a utility problem; it reduces international competitiveness. Regulatory uncertainty is not simply frustrating; it raises the cost of committing capital.

The investment problem is inseparable from the export problem. Pakistan cannot permanently resolve its external vulnerability by borrowing whenever foreign exchange becomes scarce. External financing can provide valuable time and borrowing is not inherently harmful when it finances productive investment. But repeated borrowing to fill a structural foreign-exchange gap merely postpones the underlying problem. The lasting solution is to increase the economy's capacity to earn. Exports are therefore not just another growth indicator. They are the foundation of external resilience. A country that earns more foreign exchange through competitive exports can import machinery and technology, service its external obligations and expand without repeatedly hitting the same balance-of-payments constraint.

This requires a change in the way investment is viewed. The objective should not simply be to attract more dollars, but to attract capital that expands productive capacity. Investment in export-oriented manufacturing, technology, logistics, agro-processing and other tradable sectors can generate a continuing stream of foreign exchange. It can also create domestic supply chains, transfer skills and raise productivity.

Pakistan's investment rate remains low for an economy seeking sustained growth, while its export base is still narrow. An economy with a modest investment base and limited export footprint will struggle to generate the productivity gains and employment required to transform living standards. This is why the debate over stabilisation should ultimately move beyond inflation, reserves and financing arrangements. Those indicators matter, but they are means rather than ends. The real test is whether businesses are investing, whether firms are becoming larger and more productive, whether exports are becoming broader and more competitive, and whether employment is expanding. The connection to ordinary households is direct. Investment expands productive capacity. Productive capacity creates jobs. Jobs generate incomes. Higher productivity raises wages and competitiveness. Greater exports generate foreign exchange.

THE WRITER IS A FINANCIAL MARKET ENTHUSIAST AND IS ASSOCIATED WITH PAKISTAN'S STOCKS, COMMODITIES AND EMERGING TECHNOLOGY