Pakistan is increasingly relying on home remittances — now making up 9.3 per cent of GDP — which have proven to be one of the main drivers behind the recently attained, hard-earned economic stability. The authorities are upbeat about this and take it as a pinnacle of the economy. However, this is a dangerous path, as while remittances are healthy and can serve as a good stopgap measure, the real solution to our balance-of-payments worries is to build a portfolio of foreign direct investment (FDI).
Remittances cannot replace FDI and are not enough to kick-start industrialisation in the country. They fuel consumption in an economy that is already overly dependent on imports. Consumption growth further fuels imports and can never solve balance-of-payment concerns.
Pakistan needs to grow industrial capacity, enhance productivity, and achieve technology spillovers. To meet these objectives, investment (and financing) is required. These are needed to build import substitution capacity and generate export-led growth. Remittances do not support any of these factors, while efficiency- and market-seeking FDI surely do.
That is why it is imperative to focus on how to attract foreign investment, and for that, attaining the confidence of existing investors is essential. The policy framework should focus on cementing existing investments while also attracting fresh input. However, successive governments’ actions, especially in relation to taxation measures, are making the economy investment-averse instead.
This is visible in a weak investment-to-GDP ratio of around 14pc and FDI’s fate is no different (0.6pc of GDP). Both are falling, and that gap cannot be replaced by robust remittances. The latter’s growth of 40pc in the last two years is giving the economy breathing space to think beyond firefighting. It is a transitory period, not an end goal. It is borrowed time and should be utilised to formulate policies that enhance economic productivity and boost investment.
Successive governments’ actions, especially in relation to taxation measures, are making the economy investment-averse
There is no time left for complacency. The government should focus on long-term goals, and for that, improving industrial and business competitiveness is imperative. The government should think of taxation, energy, and regulatory policies through an investment lens and not get carried away with meeting short-term targets.
One such example is how the Federal Board of Revenue (FBR) recently hurried to collect super tax dues right after the court decision came in the tax authority’s favour. Without debating how the retrospective application of taxes damages investor confidence, the manner in which the FBR asked companies to pay dues over the weekend was not appropriate. Some believe the FBR was under pressure to meet its monthly target, which is why it could not wait.
That is the government’s cash-flow problem. One can understand and be empathetic about it. However, firms have their own ways of managing cash flows. It would have been better if the FBR had allowed firms some time to arrange funds and pay the government, as per the court decision.
Investors watch and observe these episodes very carefully and make decisions accordingly. Already, past investor experience has not been positive. Some have suffered from policy inconsistencies; others complain about higher taxation and the increasing penetration of the informal economy, while almost every foreign investor is wary of delays in profit and dividend repatriation during periods of economic stress.
Not every economy faces these issues, and not every country is in dire need of investment. That is why Pakistan’s authorities must be extra careful about foreign investors’ sentiments.
However, the absence of broad-based economic recovery appears to be making the authorities jittery. Growth anxiety is building up. Persistent stability is creating an illusion of growth. The celebration is focused on growing remittances, which are now almost equal to goods and services exports combined and nearly double, as a share of GDP, compared to neighbouring economies. Some in government circles may believe that overreliance on remittances can pull the economy out of the woods and restore growth momentum.
It may, but the party would be short-lived. The key is to build production capacity and develop the requisite skill sets. The experience of many economies clearly shows that efficiency-seeking investment is the best way to achieve this. The message for the government is to align policies with long-term economic objectives and create much-needed jobs for a growing population.
The writer is Secretary General/Chief Executive of OICCI.
Published in Dawn, The Business and Finance Weekly, February 23th, 2026
