By Staff Reporter
KARACHI: Foreign investors and businesses operating in Pakistan are shelving expansion plans at an accelerating pace, rattled by the Middle East conflict’s knock-on effects on inflation, fuel costs and supply chains — a deterioration in sentiment that arrives at an especially uncomfortable moment for a government days away from presenting its annual budget.
Roughly 70% to 80% of companies are delaying or revising investment decisions, according to the 29th wave of the Business Confidence Index by the Overseas Investors Chamber of Commerce and Industry. Overall confidence dropped nine percentage points to a positive 13% in the second quarter of 2026, down from 22% the previous period. The OICCI, whose member firms collectively account for roughly 80% of Pakistan’s gross domestic product, conducts the survey twice yearly.
The findings land barely a week before Finance Minister Muhammad Aurangzeb is scheduled to unveil Pakistan’s fiscal year 2027 budget on June 10 — a document being drafted under the watchful eye of the International Monetary Fund, whose $7 billion program, approved in September 2024, remains the central pillar of the country’s economic stabilisation effort. Businesses are pressing for tax relief and lower energy tariffs, demands that sit awkwardly against the government’s obligation to meet IMF-mandated fiscal targets.
“The ripple effects of the Middle East conflict are being felt across every sector, from investment freezes to supply chain restructuring,” M. Abdul Aleem, OICCI’s secretary general, said in a statement. “While the fundamentals of the Pakistani market remain intact, restoring business confidence will require policy stability, cost relief and a concerted effort to shield the economy from prolonged geopolitical uncertainty.”
Pakistan imports the bulk of its energy needs, leaving it acutely exposed to oil-price volatility and disruptions to Gulf shipping lanes. The survey’s gauge of the global business environment collapsed 31 points, with respondents across sectors warning that disruption stemming from the conflict could persist for more than six months. The share of companies expecting conditions to worsen over the coming half-year climbed to 34%, up from 22% in the prior survey.
The damage is most visible in capital spending intentions. The New Investment Index fell 10 points to a barely-positive 2%, signaling that firms are largely in a holding pattern rather than committing fresh capital. Businesses said they are focused instead on diversifying supply chains, reducing exposure to disrupted trade corridors and trimming operational risk.
Sector trends were uneven. Services bore the sharpest blow, with confidence dropping 20 points to a positive 14%, while manufacturing slid seven points. Retail was the lone bright spot, edging up three points to a positive 20%. Geographically, confidence in major cities fell 12 points to a positive 11%, while sentiment in secondary cities — including Peshawar, Quetta, Rawalpindi, Multan, Sialkot and Sukkur — improved three points to a positive 22%.
When asked to identify the most pressing structural threats to their businesses, 84% of respondents pointed to inflation, 79% cited excessive taxation, and 61% flagged currency instability and erratic government policy as material impediments to growth — a constellation of concerns that underscores how much repair work remains even if the geopolitical noise fades.
Not everything in the survey was downbeat. Confidence among OICCI member companies — which represent many of Pakistan’s largest foreign investors — proved comparatively resilient, ticking up slightly to a positive 28%. And despite the near-term gloom, the survey detected a meaningful turn toward technology: member firms in particular are moving to integrate generative artificial intelligence into core business processes, technology platforms and workforce training programs, suggesting some multinationals view the current uncertainty as an opportunity to restructure rather than simply retrench.
Whether that longer-term optimism survives the budget’s fine print — and whatever the IMF demands in exchange for continued disbursements — is the question hanging over Islamabad as it puts the final touches on its spending plan.
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