Pakistan’s economy has seen a significant shift towards relying on home remittances, which now account for nearly 9.3 percent of its GDP. This reliance seems to have coincided with recent economic stability, but experts warn that this is merely a temporary respite. Authorities remain optimistic about the situation but are acutely aware of the need to diversify the economy beyond this short-term fix.
The authorities’ current focus on remittances and their impact on consumption growth has raised concerns among industry leaders. While home remittances are vital in staving off immediate crises, they cannot be a long-term solution for Pakistan’s economic woes. The country needs to build up a portfolio of foreign direct investment (FDI) to sustain industrialisation and boost productivity.
Pakistan’s economy currently lacks the necessary investment capacity and efficiency that FDI brings. Remittances fuel consumption in an already heavily dependent import-driven market, further exacerbating balance-of-payments challenges. To tackle these issues effectively, Pakistan must focus on building import-substitution capacities and stimulating export-led growth. However, successive governments’ actions have been counterproductive; taxation measures are making investors wary.
Investment levels remain weak, with the investment-to-GDP ratio hovering around 14 percent, while FDI contributes a mere 0.6 percent of GDP. These numbers paint a concerning picture for Pakistan’s economic future. The government must work towards improving industrial and business competitiveness to attract more foreign investments. Policymakers need to view taxation, energy, and regulatory policies through the lens of long-term investment objectives.
Recent controversies involving the Federal Board of Revenue (FBR) have further eroded investor confidence. Companies were required to pay retrospective tax dues over the weekend without adequate time or financial support from the FBR, which was seen as a punitive measure rather than a structured approach. Investors are keenly watching these developments and making informed decisions based on their experiences.
Past experiences of inconsistent policies, higher taxes, and delays in profit repatriation have dampened investor enthusiasm. The government’s focus seems to be more reactive than proactive. This situation calls for urgent attention as the absence of broad-based economic recovery is causing authorities significant anxiety. Growth anxieties are mounting, and a perception of stability is masking underlying vulnerabilities.
While remittances provide critical support during tough times, they do not address structural issues that need long-term solutions such as building production capacity and developing necessary skill sets. Faced with this reality, Pakistan’s policymakers must align their strategies with sustainable economic objectives to foster job creation for its growing population. The potential risks of overreliance on remittances are clear; the country needs a comprehensive plan to ensure sustained growth.
Published in Dawn, February 23, 2026.