Pakistan’s economic crisis deepens as investors pull out: What’s driving the meltdown

Pakistan’s economy is sliding into a deeper structural crisis as a wave of investors, professionals and multinational companies abandon the country, citing hostile fiscal policies and an uncertain business climate. What was once seen as a temporary phase of instability has turned into a systemic breakdown, with excessive taxation, erratic decision-making and state dominance choking private enterprise, according to foreign media.

In recent years, Pakistan’s private sector – the traditional driver of jobs and innovation has been steadily weakened. Major multinationals have reduced or withdrawn their operations, while local manufacturers and entrepreneurs are shifting base to countries such as the UAE, Egypt, Malaysia and Bangladesh. These economies, investors say, offer simpler tax regimes, predictable regulation and better access to finance.

Harsh taxation and dwindling demand

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The government’s fiscal strategy has become increasingly punitive towards the productive class. The salaried middle class and small firms face tax rates exceeding 40 per cent, even as inflation erodes disposable income. Businesses, struggling with weak demand, are also weighed down by multiple levies – including a super tax, turnover-based charges and withholding taxes that have made Pakistan one of the most heavily taxed economies in South Asia.

The outcome has been a sharp fall in private investment and employment. As over 75 per cent of fresh bank credit now flows to government borrowing, private firms are starved of working capital. Banks prefer the security of lending to the state rather than to businesses, worsening deindustrialisation and forcing companies in manufacturing, construction and textiles to scale down or halt expansion.

The withdrawal of major multinationals such as Procter & Gamble and other global players has begun to reshape domestic markets. Local firms are stepping in to fill the void, particularly in the fast-moving consumer goods and pharmaceutical sectors. However, economists caution that this ‘localisation wave’ reflects survival rather than strength, underscoring the failure of policy management and the erosion of investor confidence.

Pakistan’s dollar shortage has further compounded the crisis. Several foreign airlines have struggled to repatriate hundreds of millions of dollars from the country due to currency restrictions, highlighting the broader liquidity crunch that continues to deter investment.

Pakistan’s economic stress extends beyond taxation and credit. The country remains heavily dependent on external assistance from institutions such as the International Monetary Fund and the World Bank, while high public debt and volatile foreign exchange reserves leave little fiscal space for reform.

Unless Pakistan overhauls its tax system, revives private credit and adopts policies that encourage enterprise, experts warn that its economy may face irreversible decline. The country’s 250 million-strong population, once viewed as a growth opportunity, could soon become a burden if the private sector continues to collapse.