The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Executive Summary
Pakistan’s economy remains fragile with deteriorating macroeconomic indicators, hindered by a dependence on imports and low rates of foreign investment, persistently high inflation, red tape, weak rule-of-law, corruption, political uncertainty, security concerns, and long-standing difficulties attracting foreign direct investment. Devastating floods in summer 2022 and higher commodity prices due to Russia’s war in Ukraine have negatively impacted Pakistan’s energy and food security. In exchange for a $7 billion IMF Extended Fund Facility (EFF) program that began in 2019, Pakistan agreed to expand the tax base, eliminate unfunded and non-targeted subsidies, pare back state-owned enterprises, reduce energy sector arrears, bar central bank lending to government, and float the rupee – reforms designed to rein in fiscal and external deficits. Pakistan successfully negotiated an IMF staff-level agreement for a nine-month, $3 billion Stand-By Arrangement (SBA) on June 29, one day before the EFF expired.
While Pakistan has a nominally open foreign direct investment (FDI) regime, it is a challenging environment for investors. The government implemented additional duties and restrictions on imports in 2022 and delayed approvals of letters of credit and repatriation of proceeds due to foreign reserve and balance of payments concerns. Many foreign investors have reported they are considering suspending or scaling back operations in Pakistan due to these measures. Drug price controls constrain foreign pharmaceutical companies’ ability to do business in Pakistan. Dispute resolution processes are lengthy, enforcement of intellectual property rights (IPR) is weak, taxation is inconsistent and often disproportionately targets international investors, and regulations vary across the federal, provincial, and local levels of government. In late 2022, the government denied entry to U.S. soybean shipments at the Karachi port due to a lack of clarity regarding Pakistan’s regulatory framework for the import of genetically engineered agricultural products. The security situation deteriorated in the past year with a significant increase in the number of terrorist attacks in Karachi and Peshawar, further stressing the economy.
Despite the challenging investment climate, the United States is one of Pakistan’s largest sources of FDI. U.S. companies have profitable operations across a range of sectors, notably fast-moving consumer goods, agribusiness, and financial services. Other sectors attracting U.S. interest include franchising, ICT, renewable energy, and healthcare services. The Karachi-based American Business Council, a local affiliate of the U.S. Chamber of Commerce, has 61 U.S. member companies, most of which are Fortune 500 companies and span a wide range of sectors. The Lahore-based American Business Forum has 23 founding members and 22 associate members. The U.S.-Pakistan Business Council, a division of the U.S. Chamber of Commerce, supports U.S.-based companies that do business with Pakistan. In February 2023, the United States and Pakistan concluded the ninth meeting under the U.S.–Pakistan Trade and Investment Framework (TIFA), and first ministerial-level meetings since 2016. The TIFA is the primary vehicle to address impediments to bilateral trade and investment flows and to strengthen commercial ties.
As part of an effort to support the Reko Diq mining project, the government passed the Foreign Investment Promotion and Protection Act (FIPPA) in December 2022 which provides foreign investments of over $500 million with tax incentives and protections, if they are designated as “qualified investments” by Parliament. The Pakistani government updated its National Climate Change Policy and National Wildlife Policy in 2021, and has introduced the 2020-2023 National Energy Efficiency Strategic Plan and the 2020-2025 National Electric Vehicle Policy for 2-3 Wheelers and Commercial Vehicles. The government plans to install 10,000 megawatts (MW) of solar power generation by 2030. It released a request for proposal in February 2023 inviting bids to develop a 600 MW solar energy project in Muzzaffargarh, Punjab.
To access the ICS, please visit https://www.state.gov/reports/2023-investment-climate-statements/pakistan