Pakistan’s economic situation is projected to deteriorate by 2026 due to re-emerging geopolitical challenges. Friction in Pakistan-UAE relations is evident, with UAE deposits rolling over monthly at a higher rate of 6.5 per cent, impacting potential investments in Fauji Foundation companies.
There is a lack of economic support from China, with CPEC Phase-2 on hold. The refusal of Chinese IPPs to waive late payment surcharges is hindering the settlement of the power sector circular debt stock, despite banks offering loans at sub-Kibor rates.
Growing security concerns in Balochistan have indefinitely postponed the Reko Diq financial close, despite its strategic importance. Additionally, Pakistan’s relations with the US are losing momentum, with the US striking better trade deals with India and Bangladesh, while Pakistan struggles to maintain favorable terms.
State Bank of Pakistan’s foreign exchange reserves at $4.3 billion are overshadowed by the growth in external public debt and liabilities at $7.2 billion in 2025. The SBP’s efforts to boost reserves through interbank market purchases have been insufficient, leading to concerns about servicing government debt amid limited forex trading.
Foreign direct investment (FDI) remains low, and external inflows, except debt, have not materialized as expected. Despite favorable commodity prices, including a 15% decrease in oil prices in 2025, Pakistan faces challenges in attracting significant investments and bolstering reserves.
