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Pakistan’s economy remains fragile with deteriorating macroeconomic indicators, hindered by a dependence on imports and low rates of foreign investment, persistently high inflation, red tape, weak rule-of-law, corruption, political uncertainty, security concerns, and long-standing difficulties attracting foreign direct investment. Devastating floods in summer 2022 and higher commodity prices due to Russia’s war in Ukraine have negatively impacted Pakistan’s energy and food security. In exchange for a $7 billion IMF Extended Fund Facility (EFF) program that began in 2019, Pakistan agreed to expand the tax base, eliminate unfunded and non-targeted subsidies, pare back state-owned enterprises, reduce energy sector arrears, bar central bank lending to government, and float the rupee – reforms designed to rein in fiscal and external deficits. Pakistan successfully negotiated an IMF staff-level agreement for a nine-month, $3 billion Stand-By Arrangement (SBA) on June 29, one day before the EFF expired.

While Pakistan has a nominally open foreign direct investment (FDI) regime, it is a challenging environment for investors. The government implemented additional duties and restrictions on imports in 2022 and delayed approvals of letters of credit and repatriation of proceeds due to foreign reserve and balance of payments concerns. Many foreign investors have reported they are considering suspending or scaling back operations in Pakistan due to these measures. Drug price controls constrain foreign pharmaceutical companies’ ability to do business in Pakistan. Dispute resolution processes are lengthy, enforcement of intellectual property rights (IPR) is weak, taxation is inconsistent and often disproportionately targets international investors, and regulations vary across the federal, provincial, and local levels of government. In late 2022, the government denied entry to U.S. soybean shipments at the Karachi port due to a lack of clarity regarding Pakistan’s regulatory framework for the import of genetically engineered agricultural products. The security situation deteriorated in the past year with a significant increase in the number of terrorist attacks in Karachi and Peshawar, further stressing the economy.

Despite the challenging investment climate, the United States is one of Pakistan’s largest sources of FDI. U.S. companies have profitable operations across a range of sectors, notably fast-moving consumer goods, agribusiness, and financial services. Other sectors attracting U.S. interest include franchising, ICT, renewable energy, and healthcare services. The Karachi-based American Business Council, a local affiliate of the U.S. Chamber of Commerce, has 61 U.S. member companies, most of which are Fortune 500 companies and span a wide range of sectors. The Lahore-based American Business Forum has 23 founding members and 22 associate members. The U.S.-Pakistan Business Council, a division of the U.S. Chamber of Commerce, supports U.S.-based companies that do business with Pakistan. In February 2023, the United States and Pakistan concluded the ninth meeting under the U.S.–Pakistan Trade and Investment Framework (TIFA), and first ministerial-level meetings since 2016. The TIFA is the primary vehicle to address impediments to bilateral trade and investment flows and to strengthen commercial ties.

As part of an effort to support the Reko Diq mining project, the government passed the Foreign Investment Promotion and Protection Act (FIPPA) in December 2022 which provides foreign investments of over $500 million with tax incentives and protections, if they are designated as “qualified investments” by Parliament. The Pakistani government updated its National Climate Change Policy and National Wildlife Policy in 2021, and has introduced the 2020-2023 National Energy Efficiency Strategic Plan and the 2020-2025 National Electric Vehicle Policy for 2-3 Wheelers and Commercial Vehicles. The government plans to install 10,000 megawatts (MW) of solar power generation by 2030. It released a request for proposal in February 2023 inviting bids to develop a 600 MW solar energy project in Muzzaffargarh, Punjab.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2022 140 of 180
Global Innovation Index 2022 87 of 132
U.S. FDI in partner country (US$ millions, historical stock positions) 2021 $386
World Bank GNI per capita (US$) 2021 $1,470

Policies Towards Foreign Direct Investment

Pakistan seeks inward investment to boost economic growth, particularly in the renewable energy, agribusiness, ICT, and industrial sectors. Since 1997, Pakistan has maintained a largely open investment regime. Pakistan introduced an Investment Policy in 2013 that further liberalized investment policies in most sectors to attract foreign investment. Pakistan’s investment promotion agency is the Board of Investment (BOI). BOI is responsible for attracting investment, facilitating local and foreign investors, implementation of projects, and enhancing Pakistan’s international competitiveness. BOI assists companies and investors who seek to invest in Pakistan and facilitates the implementation and operation of their projects. BOI is not a one-stop shop for investors, however.

Foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect IPR, and establish clear and consistent policies for upholding contractual obligations and settlement of tax disputes. The Foreign Private Investment Promotion and Protection Act (FPIPPA), 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection for foreign investors and investment in Pakistan. The FPIPPA states foreign investment will not be subject to higher income taxes than similar investments made by Pakistani citizens. All sectors and activities are open for foreign investment unless specifically prohibited for reasons of national security and public safety. Specified restricted industries include arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. There are no restrictions specifically on U.S. investors.

The government passed the Foreign Investment Promotion and Protection Act (FIPPA) into law in December 2022 in support of the Reko Diq mining project in Balochistan. The law provides foreign investments of over $500 million that are designated as “qualified investments” by Parliament with tax incentives and protections. The law includes exemptions from federal and provincial taxes, the establishment of an investment ombudsman, and guarantees the ability to repatriate proceeds. According to the law, the ombudsman will have the same enforcement powers as a civil court and will address any investor grievance for qualified investments within 120 days. Pakistan has implemented sectoral policies designed to provide incentives to investors in specific sectors. The Automotive Policy 2016, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 (with 2020 updates), the Electric Vehicle Policy 2020-2025, the Textile Policy 2021, and a February 2022 reform package for IT sector development are a few examples of sector-specific schemes.

Pakistan cosigned an economic cooperation agreement with China, the China-Pakistan Economic Corridor (CPEC), in April 2015. Some opportunities are only open to approved Chinese companies, and CPEC has ensured those projects and their investors receive authorities’ attention.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners, other than Indian and Israeli citizens/entities, can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, excepting those involved in arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. There are no restrictions or mechanisms that specifically exclude U.S. investors. There are no laws or regulations authorizing domestic private entities to adopt articles of incorporation discriminating against foreign investment.

Pakistan does not place limits on foreign ownership or control. The 2013 Investment Policy eliminated minimum initial capital requirements across sectors and there is no minimum investment requirement or upper limit on the allowed share of foreign equity, except for investments in the airline, banking, agriculture, and media sectors. Waivers to these limits require approval from the cabinet and prime minister. Foreign investors in the services sector may retain 100 percent equity, subject to obtaining permission, a “no objection certificate,” and license from the concerned agency, as well as fulfilling the requirements of the respective sectoral policy. In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agriculture sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed.

Foreign banks may establish locally incorporated subsidiaries and branches, provided they have $5 billion in paid-up capital or belong to one of the regional organizations or associations to which Pakistan is a member (e.g., Economic Cooperation Organization (ECO) or the South Asian Association for Regional Cooperation (SAARC)). Absent this, foreign banks are limited to a 49-percent maximum equity stake in locally incorporated subsidiaries. There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a $100,000 limit on initial franchise investments and a cap on subsequent royalty payments of five percent of net sales for five years. Royalties and technical payments are subject to remittance restrictions listed in Chapter 14, Section 12 of the State Bank of Pakistan (SBP) Foreign Exchange Manual.

Pakistan maintains investment screening mechanisms for inbound foreign investment. Pakistan blocks foreign investments where the screening process determines the investment could negatively affect Pakistan’s national security. Though BOI is the official lead agency for investment screening, it lacks in-house capacity for running such screenings and relies heavily on intelligence agencies for the required due diligence.

The Prevention of Electronic Crimes Act (PECA) is under review and is likely to contain a local presence requirement in the updated version. PECA is the parent legislation to various rules, including the Removal and Blocking of Unlawful Online Content (Procedures, Oversight, and Safeguards) Rules (commonly referred to as the Social Media Rules). Should the PECA parent legislation include the new local presence requirement, all social media companies operating in Pakistan would be subject to the local presence requirement, as would other businesses subject to rules flowing from PECA.

Other Investment Policy Reviews

USAID’s Investment Promotion Activity is working with the Pakistani government and private sector to strengthen the investment climate by updating Pakistan’s investment policies, strategies and regulations; working to reduce the complexity of compliance regimes such as registration, licensing, and permits; and addressing legal barriers such as contract enforcement and dispute resolution. The Sustainable Development Policy Institute is the leading civil society think tank in Pakistan and in 2020 reported on “excessive regulations” as the key barrier to attracting more foreign investment. Details are at  Pakistan Institute of Development Economics, a public sector think tank, produced a report in 2021 on reasons Pakistan has attracted less investment than China or India. Details are at .

Business Facilitation

The Board of Investment’s “Doing Business Reform Strategy 2018-21” is the national roadmap for improving Pakistan’s investment climate. The government has simplified pre-registration and registration facilities and automated land records to simplify property registration, eased requirements for obtaining construction permits and utilities, introduced online/electronic tax payments, and facilitated cross-border trade by expanding electronic submissions and processing of trade documents.

The Securities and Exchange Commission of Pakistan (SECP) manages company registration, which is available to both foreign and domestic companies. Both foreign and domestic companies must apply for national tax numbers with the Federal Board of Revenue (FBR) to facilitate payment of income and sales taxes. Industrial or commercial establishments with five or more employees must register with Pakistan’s Federal Employees Old-Age Benefits Institution (EOBI) for social security purposes. Depending on the location, registration with provincial governments may also be required. The SECP website ( ) offers a Virtual One Stop Shop (OSS) where companies can register with the SECP, FBR, and EOBI simultaneously.

Outward Investment

Pakistan does not promote or incentivize outward investment. While Pakistan does not explicitly restrict domestic investors from investing abroad, cumbersome and time-consuming approval processes discourage outward investments. Despite this, larger Pakistani corporations have made investments in the United States in recent years.

Pakistan has signed Bilateral Investment Treaties (BITs) with 48 countries, although only 32 have entered into force and the government has declared its intention to pull out of BITs currently in force. U.S.-Pakistan BIT negotiations began in 2004 and the text closed in 2012; however, the agreement has not been signed. Pakistan has a Trade and Investment Framework Agreement (TIFA) in place with the United States. Pakistan has free or preferential trade agreements with China, Malaysia, Sri Lanka, Iran, Mauritius, Turkey, Indonesia and Uzbekistan. It is also a signatory of the South Asian Free Trade Agreement (SAFTA) and the Afghanistan Pakistan Transit Trade Agreement (APTTA).

A U.S.-Pakistan bilateral tax treaty was signed in 1959. Pakistan has double taxation agreements with 66 other countries. A multilateral tax treaty between the SAARC countries (Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) came into force in 2011 and provides additional provisions for the administration of taxes. In 2018, Pakistan updated its tax treaty with Switzerland. In 2016, Pakistan signed the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Although Pakistan has not fully implemented the OECD’s inclusive framework on BEPS, it automatically exchanges country-by-country reporting as required by the BEPS package.

Pakistan relies heavily on multinational corporations for a significant portion of its tax collections. Foreign investors in Pakistan regularly report both federal and provincial tax regulations are difficult to navigate, and tax assessments are non-transparent. The government has requested advance tax payments from companies, complicating businesses’ operations as the government intentionally delays tax refunds. New increases in federal excise taxes on sweetened carbonated beverages and juices implemented in February 2023 are impacting foreign investors in the beverage sector in Pakistan.

Transparency of the Regulatory System

Pakistan generally lacks effective policies and laws that foster market-based competition in a non-discriminatory manner. The Competition Commission of Pakistan (CCP) has a mandate to ensure market-based competition, but laws and regulations are opaque, vary among provinces, and are sometimes applied to benefit domestic businesses.  The CCP has remained without a three-member quorum of commissioners since March 2022 and is currently unable to take decisions. All businesses in Pakistan are required to adhere to certain regulatory processes managed by the chambers of commerce and industry. Rules, for example on the requirement for importers or exporters to register with a chamber, are equally applicable to domestic and foreign firms.

The federal government establishes and implements legal rules and regulations, but sub-national governments have a role as well depending on the sector. Prior to implementation, stakeholders can provide feedback to the government on regulations and policies. Regulatory authorities are required to conduct post-implementation reviews of regulations in consultation with relevant stakeholders. However, these assessments are not made publicly available. Since the introduction of the 18th amendment to Pakistan’s constitution in 2010, which delegated significant authorities to provincial governments, foreign companies must comply with provincial, and sometimes local, laws in addition to federal law. Foreign businesses complain about the inconsistencies in the application of laws and policies from different regulatory authorities. There are no rules or regulations in place that discriminate specifically against U.S. firms or investors, however.

The SECP is the main regulatory body for foreign companies operating in Pakistan, but it is not the sole regulator. Company financial transactions are regulated by SBP, labor by Social Welfare or the Employee Old-Age Benefits Institution (EOBI), and specialized functions in the energy sector are administered by bodies such as the National Electric Power Regulatory Authority, the Oil and Gas Regulatory Authority, and Alternate Energy Development Board (AEDB). Each body must submit draft regulatory or policy changes through the Ministry of Law and Justice before any proposed rules or regulations may be submitted to parliament or, in some cases, the executive branch. The SECP is authorized to establish accounting standards for companies in Pakistan. Pakistan has adopted most, though not all, International Financial Reporting Standards. Though most of Pakistan’s legal, regulatory, and accounting systems are transparent and consistent with international norms, execution and implementation is inefficient and opaque.

The Pakistani government requires companies to provide environmental, social, and governance (ESG) disclosures on their projects in country, but there is no single regulatory mechanism or central regulation for such requirements. For instance, companies must work with the Ministry of Climate Change on environmental disclosures; the EOBI on social disclosures, such as those that concern pensions; and SECP on governance disclosures. However, implementation and monitoring and enforcement mechanisms for such requirements are weak and opaque.

Most draft legislation is made available for public comment but there is no centralized body to collect public responses, nor is there a standard comment period requirement. The relevant authorities, usually the responsible ministry for proposed legislation, gathers public comments as it deems necessary; otherwise, the government submits legislation directly to the parliament. For business and investment laws and regulations, the Ministry of Commerce relies on stakeholder feedback obtained from chambers and associations rather than publishing regulations online for public review. Stakeholders may also have an opportunity for comment with members of Parliament and in parliamentary committees once the government has sent proposed draft legislation to the Parliament for review

There is no centralized online location where key regulatory actions are published. Different regulators publish their regulations and implementing actions on their respective websites. In most cases, regulatory implementing actions are not published online. Businesses impacted by non-compliance with government regulations may seek relief from the judiciary, ombudsman’s offices, and the Parliamentary Public Account Committee. These forums are designed to ensure the government follows required administrative processes. Pakistan did not announce any enforcement reforms during the last year. The BOI introduced the Pakistan Regulatory Modernization Initiative (PRMI) in June 2021 with the objective to make it easier for local and foreign businesses to comply with Pakistan’s regulations. The initiative, still in its early stages, aims to map all rules, procedures, laws and regulations; and streamline and digitize them.

International Regulatory Considerations

Pakistan is a member of SAARC, the Central Asia Regional Economic Cooperation (CAREC), and Economic Cooperation Organization (ECO). Pakistan has been a World Trade Organization (WTO) member since January 1, 1995, and provides most favored nation (MFN) treatment to all member states except India and Israel. In October 2015, Pakistan ratified the WTO’s Trade Facilitation Agreement (TFA). Pakistan is one of 23 WTO countries negotiating the Trade in Services Agreement. Pakistan notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade, albeit at times with significant delays.

Pakistan’s judicial system incorporates British standards. As such, most of Pakistan’s regulatory systems use British norms to meet international standards.

Legal System and Judicial Independence

Most international norms and standards incorporated in Pakistan’s regulatory system, including commercial matters, are influenced by UK law. Laws governing domestic or personal matters are strongly influenced by Islamic Sharia law. Regulations and enforcement actions may be appealed through the court system. The Supreme Court is Pakistan’s highest court and has jurisdiction over the provincial courts, referrals from the federal government, and cases involving disputes among provinces or between a province and the federal government. Decisions by the courts of the superior judiciary (the Supreme Court, the Federal Sharia Court, and five High Courts – Lahore High Court, Sindh High Court, Balochistan High Court, Islamabad High Court, and Peshawar High Court) have national standing. The lower courts are composed of civil and criminal district courts, as well as various specialized courts, including courts devoted to banking, intellectual property, customs and excise, tax law, environmental law, consumer protection, insurance, and cases of corruption.

Pakistan’s Contract Act of 1872 is the main law that regulates contracts with Pakistan. British legal decisions, under some circumstances, are also cited in court rulings. While Pakistan’s legal code and economic policy do not discriminate against foreign investments, enforcement of contracts remains problematic due to a weak and inefficient judiciary.

Theoretically, Pakistan’s judicial system operates independently of the executive branch. Although higher courts are widely viewed as credible, lower courts are often considered corrupt, inefficient, and subject to pressure from outside influences including the executive branch, the military, and other prominent figures. As a result, there are doubts concerning the competence, fairness, and reliability of Pakistan’s judicial system. In addition, concern over potential contempt of court proceedings inhibits businesses and the public from reporting on perceived weaknesses of the judicial system. Regulations and enforcement actions are appealable. Specialized tribunals and departmental adjudication authorities are the primary forum for such appeals. Decisions made by a tribunal or adjudication authority may be appealed to a high court and then to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Pakistan’s investment and corporate laws permit wholly owned subsidiaries with 100 percent foreign equity in most sectors of the economy. In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed. In the agricultural sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed. There is no “single window” website for investment in Pakistan which provides direct access to all relevant laws, rules, and reporting requirements for investors.

Most foreign companies operating in Pakistan are “private limited companies,” which are incorporated with a minimum of two shareholders and two directors registered with the SECP. While there are no regulatory requirements on the residency status of company directors, the chief executive must reside in Pakistan to conduct day-to-day operations. Corporations operating in Pakistan are statutorily required to retain full-time audit services and legal representation. Corporations must also register any changes to the name, address, directors, shareholders, CEO, auditors/lawyers, and other pertinent details to the SECP within 15 days of the change. To address long process delays, in 2013, the SECP introduced the issuance of a provisional “Certificate of Incorporation” prior to the final issuance of a “No Objection Certificate” (NOC).

Competition and Antitrust Laws

Established in 2007, the CCP is designed to ensure private and public sector organizations are not involved in any anti-competitive or monopolistic practices. Complaints regarding anti-competitive practices can be lodged with CCP, which conducts the investigation and is legally empowered to impose penalties. The CCP appellate tribunal is required to issue decisions on any anti-competitive practice within six months from the date in which it becomes aware of the practice.  The CCP is without a three-member quorum of commissioners since March 2022 and is unable to take decisions. The government has advertised positions to fill vacancies. The CCP concluded actions against 134 businesses during the past two years in sectors including cement, agriculture, and energy. In March 2022, the CCP passed an order against two home appliance manufacturers for price-fixing. In December 2022, the CCP passed an order penalizing a paint company for deceptive marketing practices. The company had falsely claimed its product provided protection against COVID-19. The CCP generally adheres to transparent norms and procedures. Agency decisions are reviewable by the CCP appellate tribunal and the Supreme Court of Pakistan.

Expropriation and Compensation

The Protection of Economic Reforms Act 1992 and the Foreign Private Investment Promotion and Protection Act 1976, protect foreign investment in Pakistan from expropriation, while the 2013 Investment Policy reinforced the government’s commitment to protect foreign investor interests. Pakistan has had few instances of alleged expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Pakistan is a member of the International Center for the Settlement of Investment Disputes (ICSID). Pakistan ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 2011 under its “Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act.”

Investor-State Dispute Settlement

Pakistan has Bilateral Investment Treaties (BIT) with 32 countries. The BITs include binding international arbitration of investment disputes. Since foreign investors generally distrust Pakistan’s domestic courts to enforce commercial contracts, they often include clauses requiring binding international arbitration of investment disputes in contracts with the Pakistani government. Pakistan does not have a BIT or FTA in force with the United States. Local courts do not recognize and enforce foreign arbitral awards issued against the government. Any award involving a domestic enforcement component needs an additional affirmative ruling from a local court. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Arbitration and special judicial tribunals do exist as alternative dispute resolution (ADR) mechanisms for settling disputes between two private parties. Pakistan’s Arbitration Act of 1940 provides guidance for arbitration in commercial disputes, but cases typically take years to resolve and most foreign investors include contract provisions that provide for international arbitration. Pakistan’s judicial system also allows for specialized tribunals as a means of ADR. Special tribunals are able to address taxation, banking, labor, and IPR enforcement disputes. However, foreign investors lament the lack of clear, transparent, and timely investment dispute mechanisms. Pakistani courts have not upheld some international arbitration awards. Any such award, involving local enforcement, requires direction from a local court. The Reko Diq mining dispute is an example where an international arbitral award against Pakistan was not enforced by local Pakistani courts and remained unresolved for 15 years until December 2022. Generally, domestic courts favor SOEs for their investment disputes against foreign entities on the basis of “public interest.” However, there has not been a relevant case in the past ten years.

Bankruptcy Regulations

Pakistan does not have a single, comprehensive bankruptcy law. Foreclosures are governed under the Companies Act 2017 and administered by the SECP, while the Banking Companies Ordinance of 1962 governs liquidations of banks and financial institutions. Court-appointed liquidators auction bankrupt companies’ property and organize the actual bankruptcy process, which can take years to complete.

Investment Incentives

The government’s investment policy provides both domestic and foreign investors the same incentives, concessions, and facilities for industrial development. Though some incentives are included in the federal budget, the government relies on Statutory Regulatory Orders (SROs) – ad hoc arrangements implemented through executive order – for industry specific incentives. Certain technology-focused industries, including information technology and solar energy, benefit from a wide range of fiscal incentives. In general, the government does not issue guarantees nor jointly finance foreign direct investment projects. However, under the 1994 Power Policy, the government provided sovereign guarantees for long-term power purchase agreements which guaranteed payments to independent power producers in case of payment default. The government has also provided sovereign guarantees for CPEC-related projects that cover investment and returns, along with joint financing.

The Pakistani government has implemented investment incentives to promote renewable energy technologies such as feed-in-tariffs, net metering, tax exemptions, and soft loans. The 2019 Alternative and Renewable Energy Policy (ARE) aims to increase the share of electricity generated by renewable sources to 30 percent by 2030. The policy waives import duties for imported machinery for use in local manufacturing and exempts renewable energy projects from corporate income taxes. The government allows duty-free import of renewable energy equipment and energy storage systems. However, investment in storage technologies has been slow due to high costs. The 2020 Electric Vehicles (EV) Policy aims to increase the share of electric vehicles to 30 percent by 2030 and to incentivize the installation of EV charging stations through a range of incentives including rebates on custom duties, sales tax exemptions and lower tariff rates for EV charging stations. SBP launched the Financing Scheme for Renewable Energy in June 2016, which allows commercial banks and development finance institutions to finance renewable energy power projects with a capacity up to 50 MW if approved by the AEDB. Prospective sponsors can borrow up to PKR 6 billion (about $22 million) for a single renewable energy project..

Foreign Trade Zones/Free Ports/Trade Facilitation

The government operates Export Processing Zones (EPZ) in Risalpur, Gujranwala, Karachi, Sialkot, Saindak, Gwadar, Reko Diq, and Duddar. These zones offer investors tax and duty exemptions on equipment, machinery, and materials; indefinite loss carry-forward; and access to the EPZ Authority “Single Window,” which facilitates import and export authorizations.

The 2012 Special Economic Zones (SEZ) Act, amended in 2016, allows both domestically focused and export-oriented enterprises to establish companies and public-private partnerships within SEZs. According to the Pakistan’s 2013 Investment Policy, any manufacturer that introduces technologies that are unavailable in Pakistan can receive the same incentives available to companies operating in Pakistan’s SEZs. Pakistan has a total of 24 designated SEZs. All investors in SEZs are offered a number of incentives, including a ten-year tax holiday, one-time waiver of import duties on plant materials and machinery, and streamlined utilities connections. Despite these benefits to both foreign and domestic firms, Pakistan’s SEZs have struggled to attract investment due to a number of factors, including location and their lack of basic infrastructure. Pakistan also intends to establish nine SEZs under CPEC; those SEZs remain in nascent stages of development and currently lack basic infrastructure.

The government offers special incentives for Export-Oriented Units (EOUs) – a stand-alone industrial entity exporting 100 percent of its production. EOU incentives include duty and tax exemptions for imported machinery and raw materials, as well as the duty-free import of vehicles. EOUs are allowed to operate anywhere in the country. Pakistan provides the same investment opportunities to foreign investors and local investors.

Performance and Data Localization Requirements

Foreign investors are allowed to sign technical agreements with local investors without disclosing proprietary information. Foreign investors are not required to use domestic content in goods or technology or hire Pakistani nationals, either as laborers or as representatives on the company’s board of directors. There are no specific performance requirements for foreign entities operating in the country. Similarly, there are no special performance requirements on the basis of origin of the investment. However, onerous requirements exist for foreign citizen board members of Pakistani companies, including additional documents required by the SECP as well as vetting by the Ministry of Interior. Such requirements discourage foreign nationals from becoming board members of Pakistani companies.

Currently Pakistan does not restrict data transfer outside of the economy or country’s territory except when involving the banking industry. SBP requires financial institutions to have local data storage and any transfer of data outside of Pakistan requires formal approval from SBP. Pakistan is in the process of redrafting a “personal data protection” bill and in 2021 began implementing the “Social Media Rules” approved in 2020. Previous versions of the draft data protection bill and the currently approved Social Media Rules require data localization, registration with the Pakistan Telecommunication Authority (PTA), and establishing a physical office in Pakistan. The local presence requirement includes designating a compliance and a grievance officer. The rules are also slated to be applied to internet service providers. All companies and providers are instructed to restrict content contrary to the “security, prestige, and defense of the country.” In the ICT sector, there are currently no requirements for foreign providers to disclose source code or provide access to encryption. However, the Pakistani government has plans to introduce regulations requiring such disclosure.

Real Property

Although Pakistan’s legal system includes the enforcement of property rights for both local and foreign owner interests, and it does not discriminate based on gender, it offers incomplete protection for the acquisition and disposition of real property. There is no data with respect to the percentage of land with clear title, and land title problems are common. Except for the agricultural sector, where foreign ownership is limited to 60 percent, no specific regulations regarding the leasing of land or acquisition by foreign or non-resident investors exists. Corporate farming by foreign-controlled companies is permitted if the subsidiaries are incorporated in Pakistan. There are no limits on the size of corporate farmland holdings, and foreign companies can lease farmland for up to 50 years, with renewal options. In urban centers, undocumented possession of unoccupied land (squatting) is widespread. If an owner can prove that the land was acquired through legitimate means, government agencies are generally supportive of taking possession of their property.

Mortgages and liens exist, but there are no reliable recording systems. The absence of a centralized system to record mortgages and liens frequently create legal issues for determining property rights. The 1979 Industrial Property Order safeguards industrial property in Pakistan against government use of eminent domain without sufficient compensation for both foreign and domestic investors. The 1976 Foreign Private Investment Promotion and Protection Act guarantees the remittance of profits earned through the sale or appreciation in value of property.

Though protections exist for the legal purchase of land, land titles – even for unoccupied land – remain a challenge. Improvements to land titling have been made by the Punjab, Sindh, and Khyber Pakhtunkhwa provincial governments, which have dedicated significant resources to digitizing land records. In the newly merged tribal districts of Khyber Pakhtunkhwa some land is owned collectively by the tribes and some by individuals, and there are ownership records such as bills of sale or deeds for individually owned land recognized by the provincial government called “stamp papers.” The provincial government is currently undertaking a long-term land registration process in the newly merged districts for tribally owned land.

Intellectual Property Rights

Pakistan is currently on the Office of the United States Trade Representative’s (USTR) Special 301 Report Watch List.

In 2005, the Pakistani government created the Intellectual Property Office (IPO) to consolidate government control over trademarks, patents, and copyrights and coordinate and monitor IPR enforcement by law enforcement agencies. IPO’s creation consolidated policymaking but confusion surrounding enforcement agencies’ roles constrains IP enforcement. IP rights holders struggle to elicit government action against infringements across their IP portfolios, including dealing with piracy of online content. Although IPO established ten enforcement coordination committees to improve IP enforcement, coordination is insufficient and cumbersome. Weak penalties allow counterfeiters to evade punishment, and rights holders are often unclear on the correct forum in which to file a complaint.

The IPO as an institution has suffered from leadership turnover, limited resources, and a lack of government attention. Since 2016, the Pakistani government has taken steps to improve IPO’s effectiveness, bringing IPO under the responsibility of the Ministry of Commerce. The IPO Act 2012 stipulates a three-year term, 14-person policy board with at least five seats dedicated to the private sector. Section 8(2) of the IPO Act also stipulates, “the board shall meet not less than two times in a calendar year.” Despite this, the IPO Policy Board met just once in May 2021 and did not meet again until January 31, 2023.  Only 50 percent of IPO’s approved staffing positions are filled, although it expects to onboard additional staff in 2023. In 2016, Pakistan established three specialized IP tribunals:  one in Karachi covering the provinces of Sindh and Balochistan; one in Lahore covering Punjab; and one in Islamabad covering Islamabad and Khyber Pakhtunkhwa.  The IP tribunals suffer from extensive backlogs and a high turnover rate in judges.  Higher court justices, who often lack expertise in IP law, often overrule IP tribunal decisions by issuing injunctions overriding IP tribunal enforcement orders.

IPO is updating Pakistan’s IPR laws to reduce inconsistencies and improve enforcement.  As of February 2023, IPO was finalizing draft copyright and patent amendments that the IPO Board had approved for submission to the cabinet.  The Trademarks Amendment Act 2023 was submitted to the National Assembly for approval on February 6, 2023. In May 2021, Pakistan acceded to the Madrid Protocol on Trademarks. The IPO also expressed its intention to accede to the Marrakesh Treaty, the Patent Cooperation Treaty (PCT), as well as the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty.

Resources for Intellectual Property Rights Holders:

John Cabeca
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service
tel: +91-11-2347-2000

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

Capital Markets and Portfolio Investment

Pakistan’s three stock exchanges (Lahore, Islamabad, and Karachi) merged to form the Pakistan Stock Exchange (PSX) in January 2016. As a member of the Federation of Euro-Asian Stock Exchanges and the South Asian Federation of Exchanges, PSX is also an affiliated member of the World Federation of Exchanges and the International Organization of Securities Commissions. Per the Foreign Exchange Regulations, foreign investors can invest in shares and securities listed on the PSX and can repatriate profits, dividends, or disinvestment proceeds. The investor must open a Special Convertible Rupee Account with any bank in Pakistan in order to make portfolio investments. In 2017, the government modified the capital gains tax and imposed a 15 percent tax on stocks held for less than 12 months, 12.5 percent on stocks held for more than 12 but less than 24 months, and 7.5 percent on stocks held for more than 24 months.

The SBP and SECP provide regulatory oversight of financial and capital markets for domestic and foreign investors. Interest rates depend on the reverse repo rate (also called the policy rate). Pakistan has adopted and adheres to international accounting and reporting standards – including IMF Article VIII, with comprehensive disclosure requirements for companies and financial sector entities. Foreign-controlled manufacturing, semi-manufacturing (i.e. goods that require additional processing before marketing), and non-manufacturing concerns are allowed to borrow from the domestic banking system without regulated limits. Banks are required to ensure that total exposure to any domestic or foreign entity does not exceed 25 percent of a bank’s equity. Foreign-controlled (minimum 51 percent equity stake) semi-manufacturing concerns (i.e., those producing goods that require additional processing for consumer marketing) are permitted to borrow up to 75 percent of paid-up capital, including reserves. For non-manufacturing concerns, local borrowing caps are set at 50 percent of paid-up capital. While there are no restrictions on private sector access to credit instruments, few alternative instruments are available beyond commercial bank lending. Pakistan’s domestic corporate bond, commercial paper and derivative markets remain in the early stages of development.

Money and Banking System

SBP is the central bank of Pakistan. According to the most recent statistics published by the SBP (2022), only 24 percent of the adult population uses formal banking channels to conduct financial transactions, while 24 percent are informally served by the banking sector. The remaining 52 percent of the adult population do not utilize formal financial services. Women are more likely to be unbanked than men, and the lack of financial inclusion is widely cited as a constraint to women’s economic empowerment. The SBP’s most recent review of the banking sector, in July 2021, noted improving asset quality, stable liquidity, robust solvency, and a slow pick-up in private sector advances. The asset base of the banking sector expanded by 14.1 percent during 2022 due to a surge in banks’ deposits and investments, which increased by 12.8 percent and 19.4 percent respectively. The five largest banks, one of which is state-owned, controls 57.8 percent of all banking sector assets. Foreigners require proof of residency – a work visa, company sponsorship letter, and valid passport – to establish a bank account in Pakistan. There are no other restrictions to prevent foreigners from opening and maintaining a bank account.

SBP conducted the 9th wave of the Systemic Risk Survey in January 2022. The survey results indicated respondents perceived domestic inflation, exchange rate risk, deterioration in the balance of payments and volatility in commodity prices as key risks for the financial system. The risk profile of the banking sector remained satisfactory, and moderation in profitability and asset quality improved as non-performing loans as a percentage of total loans (infection ratio) was at 7.5 percent at the end of CY 2022. In CY 2022, total assets of the banking industry were estimated at $134.3 billion and net non-performing bank loans totaled approximately $3.5 million.

The penetration of foreign banks in Pakistan is low, making a small contribution to the local banking industry and the overall economy. According to a study conducted by the World Bank Group in 2018 (the latest data available), the share of foreign bank assets to GDP stood at 3.5 percent while private credit by deposit stood at 15.4 percent of GDP. Foreign banks operating in Pakistan include Citibank, Standard Chartered Bank, J.P. Morgan, Deutsche Bank, Samba Bank, Industrial and Commercial Bank of China, Bank of Tokyo, and the Bank of China. International banks are primarily involved in two types of international activities: cross-border flows, and foreign participation in domestic banking systems through brick-and-mortar operations. SBP requires foreign banks to hold at minimum $300 million in capital reserves at their Pakistani flagship location and maintain at least an 8 percent capital adequacy ratio. In addition, foreign banks are required to maintain the following minimum capital requirements, which vary based on the number of branches they are operating: 1 to 5 branches: $28 million in assigned capital; 6 to 50 branches: $56 million in assigned capital; over 50 branches: $94 million in assigned capital.

Pakistan’s first Islamic bank was established in 2002 when Meezan Bank acquired Société Générale. With an estimated asset base of $42 billion, Islamic banks now comprise over 20 percent of the banking sector in Pakistan. In April 2022 the Federal Sharia Court (FSC) ruled the Pakistani banking sector must be completely interest free by the end of 2027. SBP and five commercial banks appealed the FSC’s decision based on a lack of clarity regarding what percentage of the banking industry must be converted to be sharia-compliant. In November 2022, SBP and National Bank of Pakistan (a government-owned bank) withdrew their appeals of the FSC ruling after Finance Minister Ishaq Dar confirmed the government’s intent to implement the ruling. Economic experts estimate it will take several years of transition to convert a greater percentage of the banking sector to Islamic banking.

Foreign Exchange and Remittances

Foreign Exchange

As a prior action of its July 2019 IMF program, Pakistan agreed to adopt a flexible market-determined exchange rate. The SBP regulates the exchange rate and monitors foreign exchange transactions in the open market, with interventions limited to safeguarding financial stability and preventing disorderly market conditions. However, other government entities influence SBP decisions through membership on SBP’s board; the finance secretary and the BOI chair currently sit on the board. The government has managed the rupee through not only the SBP and the Finance Ministry, but also through commercial banks. However, to adhere to IMF program requirements, Pakistan allowed the rupee to float in January 2023, causing the currency to depreciate by more than 11 percent in a single day.

Banks are required to report and justify outflows of foreign currency (specifically U.S. dollars). Travelers leaving Pakistan may physically carry no more than $5,000 in cash. While cross-border payments of interest, profits, dividends, and royalties are allowed without submitting prior notification, banks are required to report loan information so SBP can verify remittances against repayment schedules. Although no formal policy bars profit repatriation, U.S. companies have faced delays in profit repatriation due to unclear policies and coordination between the SBP, the Ministry of Finance, commercial banks, and other government entities. Mission Pakistan has advocated for U.S. companies which have struggled to repatriate their profits. In addition, in 2022 SBP also delayed approvals of letters of credit and instructed commercial banks to prioritize certain sectors for foreign exchange for imports, although SBP lifted this guidance to banks in June 2023. Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, up to $100,000 per year per person, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees. There is no clear policy on convertibility of funds associated with investment in other global currencies; SBP takes an ad hoc approach in such cases.

Remittance Policies

The 2001 Income Tax Ordinance of Pakistan exempts taxes on any amount of foreign currency remitted from outside Pakistan through normal banking channels. Remittance of full capital, profits, and dividends over $5 million are permitted while dividends are tax-exempt. No limits exist for dividends, remittance of profits, debt service, capital, capital gains, returns on intellectual property, or payment for imported equipment in Pakistani law. However, large transactions that have the potential to influence Pakistan’s foreign exchange reserves require approval from the government’s Economic Coordination Committee. Similarly, banks are required to account for outflows of foreign currency. Investor remittances must be registered with the SBP within 30 days of execution and can only be made against a valid contract or agreement. Although no formal policy bars investment remittance, due to the current foreign exchange and balance of payments situation the Pakistani government is delaying investment remittances, including dividends, royalties, and other proceeds (see above section).

Sovereign Wealth Funds

Pakistan does not have its own sovereign wealth fund (SWF) and no specific exemptions for foreign SWFs exist in Pakistan’s tax law. Foreign SWFs are taxed like any other non-resident person unless specific concessions have been granted under an applicable tax treaty to which Pakistan is a signatory.

Pakistan has 212 SOEs operating in various sectors: 85 commercial SOEs, 83 subsidiaries of those commercial SOEs, and 44 non-commercial SOEs (defined as not-for-profits, trusts, universities, training institutions, and welfare funds). The commercial SOEs mainly operate in seven sectors: power; oil and gas; infrastructure, transportation, and communication; manufacturing, mining, and engineering; finance; industrial estate development and management; and wholesale, retail, and marketing. According to a 2022 IMF report based on 2019 data, the total assets of Pakistan’s non-financial SOEs were 44 percent of GDP, but only accounted for 0.7 percent of total formal employment. The SOEs provide stable employment and other benefits for more than 450,000 workers, but many require annual government subsidies to cover their substantial losses.

Three of the country’s largest non-power sector SOEs are Pakistan Railways (PR), Pakistan International Airlines (PIA), and Pakistan Steel Mills (PSM). According to SBP provisional data, the total debt of Pakistani SOEs is $14.4 billion. PR is the only rail services provider in Pakistan and the largest public sector employer with approximately 90,000 employees. In 2020 PR received commitments for $8.2 billion in CPEC loans and grants to modernize its rail lines. Numerous disagreements on cost between the Pakistani and Chinese sides have delayed the upgrades with some Pakistani officials now indicating it may cost $11 billion to $12 billion. PR relies on monthly government subsidies of approximately $2.8 million to cover its ongoing obligations. PSM has not produced steel since June 2015, when the national gas company shut off supplies to PSM facilities due to hundreds of millions in outstanding unpaid utility bills.

PIA obtains its fuel from Pakistan State Oil (PSO), another SOE, and often delays payments to PSO. In November 2022, PSO ceased supplying fuel to PIA because of $53 million in unpaid fuel charges.

Privatization Program

Terms to purchase public shares of SOEs and financial institutions are the same for both foreign and local investors. In March 2019, the government announced plans to carry out a privatization program but postponed plans because of significant political resistance. The privatization of Pakistan’s national airline carrier stalled in 2016 when three labor union members were killed during a violent protest in response to the government’s decision to convert PIA into a limited company, a decision which would have allowed shares to be transferred to a non-government entity and pave the way for privatization. A bill passed by the legislature requires the government to retain 51 percent equity in the airline in the event it is privatized, reducing the attractiveness of the company to potential investors. The Privatization Commission describes the privatization process as transparent and non-discriminatory. In July 2022, the federal government approved the Inter-Government Commercial Transaction Act 2022 to enable the fast track approval of privatizations of SOEs on a government-to-government (G2G) basis. On March 31, 2023 the federal government approved the hiring of the International Finance Corporation as a transaction adviser for the potential privatization of long-term management of the Islamabad, Karachi, and Lahore international airports.

The Ministry of Human Rights in collaboration with UNDP published a five-year National Action Plan on Business and Human Rights in December 2021. The action plan was developed in line with the United Nations Guiding Principles on Business and Human Rights. The Ministry of Human Rights hosted the third Inter-Ministerial and Inter-Provincial Steering Committee on its implementation on January 25, 2023. The Committee said there should be a special focus on implementation of Action Points related to anti-discrimination, protection of marginalized communities, and Action Points related to human rights due diligence in the business sector in 2023.

Some NGOs, worker organizations, and business associations are working to promote RBC, but not on a wide scale. Children continue to work in conditions of forced and bonded labor. In rural areas, forced child labor appears to occur most frequently in the agriculture and brick making industries. Pakistan does not have domestic measures which require supply chain due diligence for companies sourcing minerals originating from conflict-affected areas. Pakistan does not participate in the Extractive Industries Transparency Initiative (EITI) nor the Voluntary Principles on Security and Human Rights. Pakistan is signatory to nearly all International Labor Organization (ILO) conventions.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Pakistan remains vulnerable to the negative effects of global climate change. 2022 flooding covered one-third of the country in water and affected approximately 33 million Pakistanis. Pakistan and international partners estimated over $16 billion would be required for recovery and reconstruction. Pakistan also suffers from earthquakes, droughts, heatwaves, and forest fires, and faces challenges of water scarcity, with experts citing the country could cross the threshold of less than 1,000 cubic meters of fresh water per capita in the mid 2020s. Pakistan has set ambitious targets and policies to mitigate and adapt to climate change, but often lacks the resources and capacity for effective implementation. The government approved a National Clean Air Policy in March 2022 and updated its National Climate Change and National Wildlife Policies in 2021. These policies address sectoral issues in air, water, agriculture, forestry, coastal areas, biodiversity, and other vulnerable ecosystems. Pakistan also introduced the 2020-2023 National Energy Efficiency Strategic Plan, the 2020-2025 National Electric Vehicle Policy for 2-3 Wheelers and Commercial Vehicles, and the Alternative and Renewable Energy Policy in 2019.

Pakistan updated its National Determined Contributions (NDC) under the UN Framework Convention on Climate Change in October 2021. Pakistan has not announced a net-zero year for carbon emissions, but aims to reduce total greenhouse gas (GHG) emissions by 50 percent by 2030 emissions versus a business-as-usual (BAU) scenario. Under the revised target, the share of renewables in power generation will increase from 30 to 60 percent, relying primarily on hydroelectric generation. Pakistan joined the Global Methane Pledge and has committed to cut methane emissions by 30 percent by 2030. The Pakistani government also pledged in 2022 to develop 10,000 MW of new domestic solar power generation capacity, and released an open, competitive tender for the first 600 MW solar power project in February 2023. However, in 2021, the government rescinded tax exemptions on renewable technologies, instituting a 20 percent tax on the imports of solar panels and wind turbines and increasing sales tax for imported electric vehicles from 5 percent to 17 percent. Given Pakistan’s limited fiscal and financial means, the government cannot deliver on its climate commitments without additional external financing.

The federal government encourages the private sector’s role in implementing its climate ambition. Pakistan established a Public Private Partnership Authority (PPPA) in 2017 with a mandate to develop, procure, and implement infrastructure projects focused on adaptation and mitigation on a public-private partnership basis. Pakistan launched the “Indus Delta Blue” project in 2022, a voluntary carbon credit market which aims to restore 350,000 hectares of mangroves over 60 years, primarily in Sindh province. The government reported in March 2023 it has earned nearly $15 million so far from the sales of Indus Delta Blue carbon credits to international buyers in the voluntary carbon credit market. The Pakistani government is working to institute other market- and non-market-based approaches to diversify its climate funding, including nature performance bonds and green/blue bonds, but those are still in the formative stage. In May 2021, WAPDA launched its first “green” Eurobond, the Indus bond, a 10-year, $500 million bond with at a 7.5 percent interest rate, for the construction of the Diamer-Bhasha and Mohmand dams. The federal government’s flagship programs on environmental conservation are focused on adaptation, including the “Green Pakistan” program (afforestation) and the “Protected Areas Initiative” (a national parks system). To improve air quality, the National Clean Air Policy adopted the Euro-6 emission standards for vehicular transport and the government converted 11,000 traditional brick kilns to use emissions-reducing zig-zag technology.

The SBP approved “green banking” guidelines in 2017 to promote environmental risk management by commercial banks and to encourage the use of climate financing. Since then, all banks have established “green banking offices,” to better evaluate and manage the impact of environmental and climate changes on their credit portfolios. While considerable progress has been made toward adopting green and sustainable banking guidelines, the degree of implementation varies across the industry. The federal government’s public procurement rules are silent on environmental concerns, but the National Planning Commission’s guidelines on federal government projects requires environmental impact assessments prior to project commencement. In practice, environmental assessments in Pakistan are pro forma exercises with scant follow up or enforcement.

Pakistan ranked 140 out of 180 countries on Transparency International’s 2022 Corruption Perceptions Index. The organization noted significant and persistent corruption within Pakistan due to gaps in accountability and enforcement of penalties, along with the lack of merit-based promotions and relatively low salaries. Bribes are classified as criminal acts under the Pakistani legal code and are punishable by law, but are widespread across most levels of government. While higher courts are widely viewed as credible, lower courts are generally considered corrupt, inefficient, and subject to pressure from prominent wealthy, religious, political, and military figures. Political interference in judicial appointments increases the government’s influence over the court system. The National Accountability Bureau (NAB), Pakistan’s anti-corruption body, suffers from insufficient funding and professionalism, and is viewed by many as politically biased. NAB prosecutions alleging bureaucratic malfeasance deter agencies from acting on legitimate regulatory concerns affecting the business sector.

Resources to Report Corruption

Lt Gen (retd) Nazir Ahmad, Chairman
National Accountability Bureau
Ataturk Avenue, G-5/2, Islamabad

Justice (R) Zia Perwez, Chair
Transparency International
5-C, 2nd Floor, Khayaban-e-Ittehad,
Phase VII, D.H.A., Karachi

Despite improvements to the security situation in recent years, security challenges continue to exist in Pakistan. There is an uptick in terrorist incidents since the 2021 Taliban takeover in Afghanistan. The presence of terrorist groups within Pakistan continues to pose threats to U.S. interests and citizens. Abductions and kidnappings of foreigners for ransom remain a concern. Many multinational companies operating in Pakistan employ private security and risk management firms to mitigate the significant threats to their business operations. Although the number of attacks by terrorist groups has declined over the last decade, increased activity since 2021 has renewed security concerns in some regions. The number of Tehreek-e-Taliban Pakistan (TTP) attacks on security officials increased significantly during the year, especially in Peshawar. Baloch militant groups continue to target the Pakistani military as well as PRC-affiliated installations in Balochistan, where Gwadar port is being developed under CPEC. There are greater security resources and infrastructure in the major cities, particularly Islamabad, and security forces in those areas may be better able to respond to emergencies. On April 11, 2022, Pakistan Muslim League-Nawaz (PML-N) President Shehbaz Sharif became prime minister after a parliamentary vote of no confidence against Imran Khan succeeded. The national parliament’s current five-year term ends on August 12.

According to Pakistan’s most recent labor force survey (2020-2021), the civilian workforce consists of approximately 72 million workers. Women are far under-represented in the formal labor force, comprising 21 percent of the labor force. The largest percentage of the labor force works in agriculture (37 percent), followed by services (37 percent), and manufacturing (25 percent). There are as-yet no reliable unemployment statistics since the COVID-19 outbreak; the official unemployment rate was roughly 6 percent pre-COVID-19 and is likely significantly higher. A large share of workers, especially women, is in the informal sector, with over 32 percent of Pakistan’s GDP represented by the informal economy, according to estimates from the World Bank’s most recent Informal Economy Database. The minimum wage as set by the federal government was 25,000 rupees (about $90) per month, which exceeded World Bank’s estimates for poverty level income. However, minimum wage laws do not cover significant sectors of the labor force, including workers in the informal sector, domestic servants, and agricultural workers. In addition, enforcement of minimum wage laws is uneven.

The constitution covers a range of basic labor provisions, but jurisdiction over most labor matters is managed by the provinces and each province is in the process of developing its own labor law regime. The only federal government body with any authority over labor matters is the Ministry of Overseas Pakistanis and Human Resource Development, whose role in domestic labor oversight is limited to compiling statistics to demonstrate compliance with ILO conventions. Legal protections for laborers are uneven across provinces, and implementation of labor laws is weak nationwide. Labor inspectorates have inadequate resources, which lead to inadequate frequency and quality of labor inspections. Some labor courts are reportedly corrupt and biased in favor of employers.

State administrators, workers in SOEs and export-processing zones, and public-sector workers are prohibited by federal law from engaging in collective bargaining or striking. Nevertheless, there have been numerous strikes at SOEs, typically opposing privatization. Provincial laws covering industrial relations also limit strikes and lockouts. At the provincial level, laws providing for collective bargaining rights exclude banking- and financial-sector workers, forestry workers, hospital workers, self-employed farmers, and persons employed in an administrative or managerial capacity. Neither the federal or provincial governments effectively enforce applicable labor laws, and the penalties for violating those laws were not commensurate with laws involving the denial of civil rights.

Most unions function independently of government and political party influence. Labor leaders raise concerns regarding employers who sponsor management-friendly or only-on-paper worker unions – so-called yellow unions – to prevent effective unionization. Although freedom of association is guaranteed under Article 17 of Pakistan’s Constitution, the ILO indicates that the Pakistani state and employers have used “disabling legislation and repressive tactics” to make union formation and collective bargaining “extremely difficult.” Provincial labor departments are responsible for managing trade union and industrial labor disputes. Recent strikes have been spearheaded by public sector workers such as teachers and public health workers. Government health workers in the province of Sindh protested the discontinuation of the Covid-19 risk allowance in January 2022, which had disrupted work at public hospitals

Pakistani labor laws generally do not cover domestic workers, including child domestic workers. In 2020, the Pakistani government amended the Employment of Children Act 1991 to include child domestic labor as hazardous wo.rk. While the decision applies only to the Islamabad Capital Territory, provinces can adopt the measure via a provincial assembly resolution. The federal government is currently conducting a child labor survey; the results for Gilgit-Baltistan were published in October 2021, and reported child labor prevalence in the province at 13.1 percent, with 1 in 7 children working. The Punjab Bureau of Statistics released the survey results in October 2022, and reported child labor prevalence in the province at 13.4 percent. The remaining provincial survey reports are expected to be completed in 2023. The ILO’s 2016-2020 Pakistan Decent Work Country Program states that “exploitative labor practices in the form of child and bonded labor remain pervasive…” and notes “the absence of reliable and comprehensive data to accurately assess the situation of hazardous child labor, worst forms of child labor, or forced labor.” The report also identifies weak enforcement of labor laws and regulations as contributing to poor working conditions and the erosion of worker rights. Nationwide, health and safety standards were poor in multiple sectors and fail to meet international standards.

In 2019, the Punjab Provincial Assembly passed the Punjab Domestic Workers Act 2019. The law prohibits the employment of children under age 15 as domestic workers and stipulates that children between 15 and 18 may only perform part-time, non-hazardous household work. In August 2021, the Khyber Pakhtunkhwa provincial assembly passed the Khyber Pakhtunkhwa Home Based Workers (Welfare and Protection) Act, 2021, which prohibits children under the age of 14 from engaging in domestic and forced labor. In 2017 the Sindh Provincial Assembly passed the Sindh Prohibition of Employment of Children Act, 2017. The law outlawed employment for children under age 14 and limits adolescents between 14 and 18 from working in hazardous conditions or working more than seven hours a day. In April 2021, the Balochistan Assembly passed the Balochistan Forced and Bonded Labor System (Abolition) Act 2021 and the Balochistan Employment of Children (Prohibition & Regulation) Act 2021. The Abolition Act banned hazardous work for children below 14 years of age and established a Committee on the Rights of the Child to oversee its implementation.

DFC is active in Pakistan, with a current portfolio of $258 million as of December 2022, including investments in: insurance for, or financing of microfinance, wind energy, and healthcare projects, among others. An Investment Incentive Agreement was signed between the United States and Pakistan in 1997:

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2022 $327,578 2021 $348,260
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) ** 2022 $249.6 2021 $386 BEA data available at
Host country’s FDI in the United States ($M USD, stock positions)** 2022 $3.64 2021 $166 BEA data available at
Total inbound stock of FDI as % host GDP 2020 0.6% 2020 0.8% UNCTAD data available at    

* Source for Host Country Data: and
(NOTE:  **There are no Pakistani official figures for FDI stocks.  The host country figures reported here represent FDI flows.  END NOTE.)

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)*
Inward Direct Investment Outward Direct Investment
Total Inward $32,547 100% Total Outward $1,869 100%
United Kingdom $6,456 19.8% United Arab Emirates $607 32.5%
China, P.R.: Mainland $4,880 14.9% Bahrain $229 12.3%
Switzerland $3,174 9.8% Bangladesh $140 7.5%
The Netherlands $2,555 7.9% Kenya $95 5.0%
United Arab Emirates $2,470 7.6% Bermuda $94 5.0%
“0” reflects amounts rounded to +/- USD 500,000.

*2021 figures (latest data available). Source: IMF Coordinated Direct Investment Survey

Robert Folley
Economic Officer – Trade and Investment
Embassy Islamabad
+92 51 201 4000 

On This Page

  2. 1. Openness To, and Restrictions Upon, Foreign Investment
    1. Policies Towards Foreign Direct Investment
    2. Limits on Foreign Control and Right to Private Ownership and Establishment
    3. Other Investment Policy Reviews
    4. Business Facilitation
    5. Outward Investment
  3. 2. Bilateral Investment and Taxation Treaties
  4. 3. Legal Regime
    1. Transparency of the Regulatory System
    2. International Regulatory Considerations
    3. Legal System and Judicial Independence
    4. Laws and Regulations on Foreign Direct Investment
    5. Competition and Antitrust Laws
    6. Expropriation and Compensation
    7. Dispute Settlement
      1. ICSID Convention and New York Convention
      2. Investor-State Dispute Settlement
      3. International Commercial Arbitration and Foreign Courts
    8. Bankruptcy Regulations
  5. 4. Industrial Policies
    1. Investment Incentives
    2. Foreign Trade Zones/Free Ports/Trade Facilitation
    3. Performance and Data Localization Requirements
  6. 5. Protection of Property Rights
    1. Real Property
    2. Intellectual Property Rights
      1. Resources for Intellectual Property Rights Holders:
  7. 6. Financial Sector
    1. Capital Markets and Portfolio Investment
    2. Money and Banking System
    3. Foreign Exchange and Remittances
      1. Foreign Exchange
      2. Remittance Policies
    4. Sovereign Wealth Funds
  8. 7. State-Owned Enterprises
    1. Privatization Program
  9. 8. Responsible Business Conduct (RBC)
    1. Additional Resources
    2. Climate Issues
  10. 9. Corruption
    1. Resources to Report Corruption
  11. 10. Political and Security Environment
  12. 11. Labor Policies and Practices
  13. 12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
  14. 13. Foreign Direct Investment Statistics
  15. 14. Contact for More Information
2023 Investment Climate Statements: Pakistan
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