Karachi: Foreign direct investment is reaching Pakistan despite systemic corruption, according to a new study that exposes the structural defects that promote capital to fragile sectors.
A Summary of Policies of the Islamabad Policies Research Institute (IPRI) finds that foreign investors continue to deploy capital in Pakistan even when the country languishes near the bottom of global transparency classifications.
With an IPC score of 27 out of 100, Pakistan is widely seen as one of the most corrupt investment destinations in southern Asia. However, FDI tickets remain concentrated in energy, food and financial services, all sectors highly exposed to the search for rentals and informal payments.
“Corruption in Pakistan not only coexists with FDI, but also facilitates it,” the report said, adding that the country maintains “a transactional environment where regulatory bottlenecks do not navigate through the reform, but through bribery.”
Using the temporal series and the regression models of panels that cover 1995 to 2024, the study found that FDI tickets increase as corruption increases, a finding that is celebrated even for capital that originates in countries of low corruption such as Germany, Japan and Canada. It seems that investors are less dissucted by the risks of governance when the returns are attractive, particularly in the Pakistan energy sector, where the agreements can be accelerated with “speed money.”
The report highlights Pakistan’s energy sector as a textbook case. While billions in FDI have increased installed capacity under initiatives such as the Chinese-Pakistan Economic Corridor (CPEC), systemic corruption has neutralized those profits.
The sector is now loaded with a circular debt that exceeds RS2.6 billion. Projects such as rental energy plants and independent energy producers (IPP), initially praised as solutions to energy shortage, have become warning stories of poor management and opacity.
Similarly, foreign investment in banking and food services has failed to produce productivity profits. The financial sector is very inclined towards government loans, and the food sector is still dependent on importation, aggravating the stress of the Pakistan external account.
The study places Pakistan’s experience within a broader pattern in southern Asia. Neighboring countries with equally low IPC scores, including India (38), Bangladesh (23) and Sri Lanka (32), also receive and send a substantial FDI. In some cases, companies “may prefer to invest in countries where they are familiar with the challenges of navigating this environment.”
To break the cycle, the report urges Pakistan to go beyond anti -corruption symbolic rhetoric. Recommends digitizing FDI transactions, enforcing contracts related to performance and implementing AI tools to mark anomalies. Simplified licenses and coordination between agencies are also critical.
“IED should be a development tool, not a subsidy for dysfunction,” concludes the report. “Without structural reforms, foreign capital will continue to reward and reinforce the same systems that retain Pakistan.”
