External woes

PAKISTAN’S external sector has once again exposed the economy’s structural weaknesses that bilateral debt rollovers and short-term stabilisation measures had helped conceal. The sharp 31pc decline in FDI in the first 10 months of FY26, coupled with the return of the current account deficit in April, underscores how the balance-of-payments position remains fragile despite stabilisation claims. It is not merely the fall in foreign investment volumes that is troubling but also the stubbornly meagre levels of FDI inflows for the past several years, which have fluctuated only marginally. More than half the FDI came from China, reflecting our inability to boost foreign private inflows or diversify the foreign investment base. While Chinese investment is critical, it highlights the absence of broader investor confidence in Pakistan’s economic clime. Even Chinese inflows have declined from over $1bn last year to $740m this year, suggesting that a partner of long standing is becoming more cautious. Also alarming is the scale of disinvestment. The withdrawal of capital from the telecom sector, including the likely impact of Telenor’s exit, sends a negative signal to foreign investors. Persistent policy uncertainty, taxation issues, currency instability and difficulties in profit repatriation have made MNCs wary of the local market, with various firms exiting Pakistan altogether in recent years. That foreign capital still continues to flow — mainly into sectors offering guaranteed or protected returns rather than export-oriented manufacturing or technology-driven industries which could have ensured both growth and foreign exchange earnings — is another problem. Along with low private capital inflows, this situation limits FDI’s long-term developmental impact and perpetuates our reliance on debt and remittances. The return of the current account deficit, therefore, reinforces wider concerns about the external sector. It reveals the vulnerability of the balance-of-payments to im