Stable yet stalled

2026-03-05 - 21:53

FOREIGN investors are cashing out big time in Pakistan – pulling away profits while fresh capital hesitates. Beneath the glow of celebrated macro stabilisation lies deep structural rot. On the surface, things appear steadier: foreign exchange reserves sit around $16.2 billion at the State Bank; inflation has cooled to single digits; remittances climb above $23 billion in the first seven months of FY26. These gains create smoother capital flows – no more desperate queues at forex counters, no blocked transfers. Foreign owners now pull out earnings with confidence. Yet the deeper picture looks darker. Old investments in protected sectors harvest handsome returns – then exit fast. Profit and dividend repatriation reached about $1.68 billion in July–January FY26 – a sharp surge from the previous year. The power sector drove much of the jump: guaranteed dollar yields and rupee weakness fuelled the gains. These trends do not signal vibrant, inclusive growth. Instead, they show enclave profitability at work: multinationals and local cronies operate in shielded niches; they extract value from everyday consumers and taxpayers – then bolt overseas with the cash. Meanwhile, dismal FDI inflows highlight the real crisis. New foreign direct investment has taken a nosedive: net FDI plunged 41% to $981 million in 7MFY26 (down from $1.66 billion the year before). Some reports show an even steeper 51% drop – to $694 million – with gross inflows of $2.1 billion eroded by $1.1 billion in outflows. January 2026 brought only $173 million net – better than December’s outflow, but still 27% below the prior January. This sharp decline reflects persistent investor caution: regional instability adds risks; global high interest rates lure capital elsewhere; domestic factors deter long-term bets – tight IMF policies, lingering political uncertainty, elite capture distorting markets. Even traditional partners – China, the UAE, the UK – are pulling back. This “harvest and exit” dynamic exposes the façade clearly: stabilisation buys breathing room externally – it delivers no real transformation at home. GDP growth lingers at a sluggish 3–4.75% – barely matching population increases. Per-capita living standards stagnate for families across cities and towns: wages have not recovered fully; utility costs bite hard; youth face limited opportunities. Remittances paper over the external gap – but they indirectly subsidise foreign exits rather than fuel broad-based jobs or innovation. Circular debt burdens the public; energy prices cripple industry; purchasing power stays squeezed. The qualitative truth stands stark: the system rewards extraction over inclusion. Elite capture locks in supernormal profits for a narrow group; barriers stifle competition and genuine investment. Without real change – enforcing transparency, breaking crony deals, broadening the tax net, incentivising reinvestment – the cycle drags on. Value flows out faster than it builds in; what passes for stability becomes a prettier cage for stagnation. Stabilisation has bought time – but it cannot replace structural courage. Reforms must enforce transparency, break crony deals, broaden the tax net, and incentivise reinvestment. Until these steps kick in, the script stays the same: Pakistan’s economy will continue serving distant shareholders better than its own people. The dismal FDI inflows prove the point – stabilisation is no substitute for true investor confidence. —The writer is a political analyst, based in Islamabad. (riaz.missen@gmail.com)