Pakistan is grappling with a worsening foreign exchange crisis, driven by pressure to repay roughly $4.8 billion in external debt, a sharp decline in foreign direct investment, and eroding investor confidence, according to a report in the Times of Oman. The crisis reflects structural vulnerabilities that analysts say have compounded over several years.

FDI Collapse and Multinational Exodus

Foreign direct investment in Pakistan plummeted by 33 per cent in FY26, falling to $1.195 billion from $1.92 billion in 2023–24 and $1.83 billion in 2024–25. As a share of GDP, FDI remained below 0.45 per cent — a level that economists consider insufficient for a developing economy of Pakistan's size.

The declining confidence is also reflected in a wave of multinational exits. Procter & Gamble has decided to shut down manufacturing operations in the country. Shell, Telenor, Uber, Yamaha, and Eni, along with several foreign banks and pharmaceutical companies, have either scaled down or ceased operations entirely. Various policy measures announced by the government to revive investor sentiment have reportedly failed to produce results.

Unemployment Rising, Youth and Women Hit Hardest

Labour force survey data cited in the report shows Pakistan's unemployment rate climbed from 6.3 per cent in 2020–21 to 6.9 per cent in 2024–25. Women and youth bore the heaviest burden of this deterioration, according to the data.

Debt Burden and Fiscal Strain

Pakistan's public debt surged to Rs 80.52 lakh crore by the end of FY25, while external debt and liabilities stood at $138 billion. The report noted that economic growth over the last three years averaged approximately 1.7 per cent, government debt equalled roughly 70 per cent of GDP, and gross financing needs were among the highest globally.

This comes amid Pakistan's heavy fiscal exposure to West Asian economic conditions. The country spends approximately 4 per cent of GDP annually on fuel and fertiliser imports from the Gulf region. The dependence on fuel, food supplies, and remittances from West Asia has placed the economy under significant strain, with Islamabad reportedly ordering austerity measures including school closures and a reduced working week to manage the ongoing oil crisis.

Structural Vulnerabilities and the Road Ahead

Notably, the combination of high debt servicing obligations, shrinking FDI, rising unemployment, and Gulf-linked exposure represents a convergence of pressures that Pakistan's policymakers have struggled to address simultaneously. Critics argue that without meaningful structural reforms and restored investor confidence, recurring debt rollovers will remain Pakistan's primary economic strategy. The next few months — and the outcome of any ongoing engagement with international creditors — will be closely watched as indicators of whether the crisis stabilises or deepens further.