The Dollar Test: Why Pakistan Needs Joint Ventures

October 15, 2026 (MLN): Pakistan does not have a growth problem. It has a structural dollar problem.

The economy earns too few dollars from exports, spends too many on imports, and lets too much of the foreign investment it attracts flow back out. Every ship that brings fuel, every machine that arrives at Port Qasim, every tonne of raw material that feeds our factories must be paid for in a currency we do not print.

Foreign investment is one answer. But not all foreign investment is equal. Some brings dollars in and keeps earning them. Some brings dollars in once and then quietly takes them back out.

The difference decides whether Pakistan grows or borrows. The UN trade and investment body made this point in July. The central question about foreign investment, UNCTAD argued, is not how much capital crosses borders. It is where the money goes, what it builds and who benefits (UNCTAD, World Investment Report 2026).

The best structure for getting it right is the joint venture.

The latest numbers look good. Net Foreign Direct Investment (FDI) was about 495 million dollars in July and August 2026, up from 399 million dollars a year earlier. August alone brought 316 million dollars (State Bank of Pakistan, monthly FDI data).

But the full year was weak. Net FDI in fiscal year 2026 was 1.67 billion dollars, against 2.48 billion dollars in fiscal year 2025 (State Bank of Pakistan, annual FDI data). FDI has also stayed below 1 percent of gross domestic product since 2010 (World Bank, World Development Indicators). Two good months do not change a decade.

The mix matters more than the total. In the first nine months of fiscal year 2026, power drew 52.7 percent of net FDI and financial businesses 43.5 percent (Pakistan Economic Survey, FY2026). Together that is 96 percent.

All other sectors combined netted under 4 percent. Telecommunications alone recorded a net outflow of 465.5 million dollars, which the Survey attributes to a one-time divestment. Power and finance matter. But they do not make goods for export. The World Bank describes the same pattern. FDI has gone mainly to protected, domestic-oriented sectors, where the size of the local market is the attraction (World Bank, Pakistan Development Update, October 2025).

That concentration is both a symptom and a cause. Investors gravitate to protected sectors because returns are safer and policy risk is lower. But that same preference deepens Pakistan's external vulnerability. Goods exports fell 5.93 percent to 30.1 billion dollars in fiscal year 2026, while imports rose 8.14 percent to 69.8 billion dollars. The trade deficit reached 39.6 billion dollars (Pakistan Bureau of Statistics, trade data, FY2026).

The pressure has not eased. Exports reached 2.94 billion dollars in September 2026, up 17.6 percent from a year earlier, but imports rose by more than 11 percent to about 6.49 billion dollars. The monthly trade deficit widened to around 3.56 billion dollars, and the July to September 2026 deficit reached approximately 10.79 billion dollars, about 15 percent higher than a year earlier (Pakistan Bureau of Statistics, September 2026 trade statistics).

Workers' remittances, at 41.6 billion dollars, exceeded goods exports by a wide margin (State Bank of Pakistan, balance of payments data). The World Bank says exports have slipped from 16 percent of gross domestic product in the 1990s to about 10 percent, leaving untapped potential near 60 billion dollars (World Bank, Pakistan Development Update, October 2025).

Pakistan's factories are not the problem. Their orientation is. Large-scale manufacturing grew 5 percent in fiscal year 2026 (State Bank of Pakistan, Monetary Policy Statement). But much of the growth faced inward. Imports of car parts and kits for local assembly more than doubled to 1.5 billion dollars in July to March (Pakistan Economic Survey, fiscal year 2026). Output rose. So, did the import bill. Exports did not follow. Investment that serves only the home market earns rupees, yet over time it claims dollars.

Pakistan already has an industrial foundation. It has established manufacturers, industrial clusters, skilled workers and networks of domestic suppliers. What it lacks is the technology, specialized expertise and market access that would make these capabilities globally competitive. That is where a more focused approach to foreign investment could make a difference.

The geography of FDI compounds the problem. China supplied 678.6 million dollars of net FDI in the first nine months of fiscal year 2026, Hong Kong 253.7 million dollars and the United Arab Emirates 143.9 million dollars (Pakistan Economic Survey, fiscal year 2026).

Together, these three sources accounted for nearly 80 percent of net FDI. That is a narrow base. The World Bank puts Pakistan's missing FDI at about 2.8 billion dollars a year, with the greatest potential in North America and the European Union (World Bank, Pakistan Development Update, October 2025). Medium-sized industrial firms from those regions are natural joint venture partners, and many would welcome a trusted local one.

This is why we need a better yardstick. Foreign investment can earn dollars by producing for export. It can save dollars by replacing imports. Or it can consume dollars by serving the home market and sending income abroad.

The third kind is legitimate, but it is a claim on reserves. Primary income payments abroad, which include profits, dividends and interest, reached 8.4 billion dollars in fiscal year 2026 (State Bank of Pakistan, balance of payments data). That is nearly five times net FDI. I call this the Dollar Test. Before approving or rewarding a major project, ask one question. What will it do to our net foreign exchange position over the next ten years?

The test is simple to apply. At approval, ask for three numbers. Expected exports, expected local sourcing and expected dollar outflows through profits and imported inputs. Review them every year.

The World Bank has urged Pakistan to remove barriers to profit repatriation, and it is right (World Bank, Pakistan Development Update, October 2025). Investors need that assurance. But free repatriation makes the Dollar Test more important, not less. A country that lets profits flow out freely must make sure the investment earns the dollars to pay for them.

The joint venture model meets this test better than most. The foreign partner brings technology, quality systems and buyers abroad. The Pakistani partner brings plants, workers, suppliers and local knowledge.

Both gain when exports grow, because exports are how the joint venture grows. A joint venture is not a guarantee of export orientation. The Dollar Test must still be applied. But it improves the odds by embedding foreign buyers and quality systems from day one. This approach would complement, not replace, new foreign investment projects. New factories remain necessary where additional capacity or entirely new industries are required. But where viable Pakistani manufacturers already possess infrastructure and commercial experience, a joint venture can provide another route to expansion.

The World Bank finds that firms linked to FDI through supply chains are more likely to join global value chains (World Bank, Pakistan Development Update, October 2025). It also reports that only 2 percent of Pakistani firms introduced a new product or process over three years, against 28 percent in lower middle-income countries (World Bank Enterprise Surveys, Pakistan). A joint venture attacks that gap directly. And we start from a base, since large-scale manufacturing is about 8 percent of gross domestic product (Pakistan Economic Survey, fiscal year 2026).

Technology transfer, however, is not automatic. A foreign partner may have little incentive to transfer advanced technology unless the commercial arrangement supports it. A local business may struggle to benefit if it lacks the capacity to meet the partner's requirements. Joint ventures must therefore be based on complementary strengths, clear commercial objectives and a credible plan for developing local capabilities.

Picture a mid-sized engineering firm in Sialkot or Karachi. It has skilled workers and a sound plant, but its products fail the audits of European buyers. A foreign partner with the right tooling and certification can change that. The firm begins to supply the partner's customers. Local steel, packaging and component makers are pulled into the chain and must raise their own standards too. One investment brings many upgrades.

Vietnam shows what focus can do. It received 20.35 billion dollars in FDI inflows in 2025 (UNCTAD, World Investment Report 2026), more than twelve times Pakistan's fiscal year 2026 figure. Vietnam's inflows were flat that year, so the lesson is not rapid recent growth. It is the accumulated stock of export-oriented investment built over decades.

The World Bank credits export-oriented investment by firms such as Samsung and Foxconn with turning Vietnam into a technology hub (World Bank, World Development Report 2020). Vietnam's success rests on deliberate industrial zone policy, stable macro rules and competitive infrastructure. The economies differ. The principle does not. Capital that goes into factories that export tends to connect them to the world.

The opportunities extend beyond traditional export sectors. Engineering goods, food processing and pharmaceuticals offer scope for stronger domestic production and exports, based on existing capabilities, commercial viability and realistic international demand.

The alternative is more borrowing. Pakistan raised 3 billion dollars through Eurobonds in September 2026. IMF has reached staff-level agreement on its fourth review, which would take disbursements under its two programmes to about 5.7 billion dollars, and gross reserves have recovered to about 21.5 billion dollars (IMF, press release, 7 October 2026). That is real progress. But loans must be repaid with interest. The same IMF statement calls for structural change toward higher value-added activity and stronger support for private investment and exports. 

Some will say performance conditions deter investors. The evidence points the other way. The World Bank notes that investors are highly sensitive to the credibility of investment protection (World Bank, Pakistan Development Update, October 2025). Clear and stable terms, applied evenly, are what they want. A sound framework should also protect the foreign partner's technology and set out exit terms. Fairness to both sides is what makes partnerships last.

As an economic analyst, this would be my policy recommendation to the government. Adopt the Dollar Test as the standard for every incentive offered to foreign investors, and begin with joint ventures. Four measures would put it in place.

First, set up a Joint Venture Fast Track inside the existing investment facilitation machinery, with the Board of Investment working alongside chambers of commerce and industrial associations to identify capable Pakistani manufacturers and present them directly to suitable foreign partners, with a single window and a fixed decision timeline for projects that pass the test.

Second, release tax and tariff support in stages, against verified exports, local sourcing, technology adoption, workforce training and local supplier development. This fits the fiscal discipline of the IMF programme, and the World Bank itself advises cost assessments for new exemptions and sunset clauses (World Bank, Pakistan Development Update, October 2025).

Third, compile a sector-wise register of credible Pakistani manufacturers and introduce them directly to foreign firms, beginning with sectors where Pakistan has established industrial capabilities and realistic export potential.

Fourth, publish an annual scorecard of FDI by sector, with manufacturing and export-linked investment reported separately.

Pakistan has spent decades building its industrial base. The next phase should connect that base with foreign technology, capital and markets. Capital that arrives once is a statistic. A partnership that earns dollars every year is a strategy. The message is plain. Stop counting dollars at the door, and start counting what they do inside the house.

 About Author:

The writer, Shahid Anwar, is an Economic Analyst and former Secretary General of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

He also served as Senior Director Research at the Institute of Cost and Management Accountants of Pakistan (ICMAP), with 36 years of experience in business, trade and economic affairs. He provides advisory support on trade, investment and business partnerships.

Disclaimer:

The above analysis/article is for informational and educational purposes only.

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