Pakistan is confronting a deepening foreign exchange crisis, driven by mounting pressure to repay approximately $4.8 billion in external debt, a collapse in investor confidence, and a sharp decline in foreign direct investment, according to a report by the Times of Oman.

FDI in Freefall

Foreign direct investment into Pakistan plunged 33 per cent in FY26 to just $1.195 billion, extending a sustained downward trend — down from $1.92 billion in 2023–24 and $1.83 billion in 2024–25. As a share of GDP, FDI has remained below 0.45 per cent, a figure that underscores the structural weakness of Pakistan's investment environment.

The report attributed the decline in part to Islamabad's failure to build durable investor confidence despite successive policy interventions. 'The dwindling confidence in the economy is also actively expressed through the exit and downsizing of several multinational firms in recent years,' the report noted.

Multinationals Exiting Pakistan

The scale of corporate retreat is striking. Procter & Gamble has shut down its manufacturing operations in the country. Other firms — including Shell, Telenor, Uber, Yamaha, Eni, several foreign banks, and pharmaceutical companies — have either scaled back or wound up operations entirely. This wave of exits signals a broader loss of confidence that goes beyond short-term economic volatility.

Debt Burden and Fiscal Strain

Pakistan's public debt surged to Rs 80.52 trillion by the end of FY25, while total external debt and liabilities stood at $138 billion, according to the report. Economic growth over the last three years has averaged approximately 1.7 per cent, while the government's debt-to-GDP ratio has reached 70 per cent — with gross financing needs described as among the highest in the world.

Unemployment, according to labour force survey data cited in the report, rose from 6.3 per cent to 6.9 per cent between 2020–21 and 2024–25, with women and youth bearing a disproportionate share of job losses.

West Asia Dependency and the Energy Crunch

The report flagged that Pakistan's economy remains highly exposed to shocks from West Asia, spending roughly 4 per cent of GDP annually on fuel and fertiliser imports from the Gulf. Heavy reliance on Gulf remittances compounds this vulnerability. Islamabad has reportedly responded with austerity measures including school closures and a reduced working week to manage the ongoing oil crisis.

What Comes Next

With gross financing needs at historic highs and multinational exits accelerating, Pakistan's path to economic stabilisation remains uncertain. Analysts warn that without a credible structural reform agenda and renewed investor engagement, the current crisis risks becoming entrenched rather than cyclical.