EDITORIAL: Grim economic news continues to arrive with unsettling regularity. Recent media reports warn that the investment-to-GDP ratio may slip below 13 percent during FY26, as both domestic investment and foreign direct investment (FDI) sink to levels not seen in decades. This would mark a fresh low for an already capital-starved economy. The warning is especially stark given that the ratio had already fallen to 13.1 percent in FY24, the weakest showing in 50 years, triggering widespread alarm at the time. Although a modest recovery followed in the subsequent fiscal year, it is now evident that the government’s remedies to restore investor confidence haven’t worked. Domestic investors remain sidelined, foreign investors are pulling back and even established foreign businesses are steadily exiting the market. The result is a potentially deeper slide in the investment ratio, with serious implications for growth, employment and long-term economic stability. It is now evident that the much-vaunted Investment Policy of 2023 has failed to create either the enabling environment or the momentum needed to attract capital. In fact, its goal of lifting the investment ratio to 20 percent has lost all credibility as a serious policy objective, drifting far beyond optimism and now sitting firmly in the realm of fantasy. The root causes of this malaise are no mystery, having been enumerated time and again in economic coverage and analytical writing. The fact remains that capital is inherently risk-averse, flowing predictably towards environments that offer political stability, policy certainty, rule of law and security. And in the prevailing political, policy and security climate, these fundamentals remain well short of the thresholds that serious investors require. Recent months have seen not only multinationals exit the country but also leading Pakistani textile groups shift investment overseas, squeezed by punishing energy costs — driven by the government’s perennial mismanagement of the power sector — and persistently high interest rates. These pressures are further intensified by a tax structure built around minimum taxation on turnover regardless of profitability, multiple withholding tax rates applicable at each stage of business transactions and rates that in some cases approach as high as 60 percent, all pushing effective tax burdens to levels that actively discourage reinvestment at home while also deterring FDI. Adding to the economic and regulatory pressures are grave issues related to rising terrorism, volatile borders and erratic governance across multiple spheres, all of which heighten investor caution. The prevailing confrontational politics haven’t helped matters either, needlessly fuelling political instability. While the opposition’s role here has been far from constructive, the fact remains that the ultimate onus for calming political temperatures rests with the government, whose duty it is to maintain a stable environment — a prerequisite for a conducive investment climate. And on this front, the government is clearly falling short. When the SIFC (Special Investment Facilitation Council) was established under the 2023 Investment Policy, it was hoped that a single body would be able to resolve all investment-related hurdles, serving as a one-stop facilitator to cut bureaucratic red tape, improve ease of doing business, and coordinate federal and provincial efforts to create a more favourable investment climate. The reality, however, is that the stagnation of investment reflects deeper structural issues: an economy prone to elite capture, distortions in taxation and myriad systemic inefficiencies. Undoing all this requires far-reaching reforms, including broadening the tax base and making the tax regime more equitable, overhauling the power sector to reduce crippling energy costs, and addressing wider governance and political stability challenges — measures that extend well beyond the mandate of a single investment facilitator. Unless the rulers summon the political will and capacity to undertake these wide-ranging reforms, any hope of revitalising investment will remain a pipedream. Copyright Business Recorder, 2025