Karachi: Foreign direct investments flock to Pakistan despite systemic corruption, according to a new study that exposes structural defects that lead capital to fragile sectors.
A memory of Politics of Islamabad Policy Research Institute (IPRI) reveals that foreign investors continue to deploy capital in Pakistan even if the Languian country near the world classification of transparency.
With a CPI score of 27 out of 100, Pakistan is widely considered as one of the most corrupt investment destinations in South Asia. However, FDI entries remain concentrated in energy, food and financier services – all sectors strongly exposed in search of rents and informal payments.
“Corruption in Pakistan does not only coexist with the IED – it facilitates it,” said the report, adding that the country maintains “a transactional environment where regulatory bottlenecks are navigated not by reform, but by corruption”.
Using models of chronological series and regression of panels covering 1995 to 2024, the study revealed that IDE entries increase as corruption increases – an observation which is even for capital from low corruption like Germany, Japan and Canada. Investors, it seems, are less dissuaded by the risks of governance when the yields are attractive, especially in the energy sector of Pakistan, where transactions can be accelerated with “speed speed”.
The report highlights the energy sector of Pakistan as a manual case. While billions of people in FDI have strengthened installation capacity in initiatives such as the Chinese-Pakistani Economic Corridor (CPEC), systemic corruption has neutralized these gains.
The sector is now overwhelmed with a circular debt exceeding 2.6 billions of rupees. Projects such as rental power plants and independent electricity producers (PPI), initially praised as solutions to energy shortages, have become edifying stories of mismanagement and opacity.
Likewise, foreign investments in banking and food services have failed to produce productivity gains. The financial sector is strongly tilted towards government loans, and the food sector remains dependent on importation and aggravating the stress of the external account of Pakistan.
The study places Pakistan’s experience in a wider model in South Asia. Neighboring countries with similar CPI scores – including India (38), Bangladesh (23) and Sri Lanka (32) – also receive and send substantial ideas. In some cases, companies “may prefer to invest in countries where they know the challenges of navigating in such an environment”.
To break the cycle, the report urges Pakistan to go beyond symbolic anti-corruption rhetoric. He recommends digitizing IDE transactions, applying performance -related contracts and deploying AI tools to report anomalies. Rationalized licenses and interinable coordination are also essential.
“The IED should be a development tool, not a subsidy for dysfunction,” concludes the report. “Without structural reforms, foreign capital will continue to reward and strengthen the very systems that will retain Pakistan.”
