Why global investors eyeing Pakistan again

May 15, 2025 (MLN): In a world where markets often ignore smaller economies until crisis strikes, Pakistan is quietly proving it deserves a second look.

The country, home to over 255 million people, has undergone a remarkable economic turnaround over the past two years largely unnoticed on the global stage.

Inflation, once soaring near 40%, has now plummeted to nearly zero. Pakistan’s Eurobonds maturing in 2031 have doubled in value, jumping from 40 cents on the dollar to 80 cents.

The Karachi Stock Exchange has tripled. All of this has happened under Prime Minister Shehbaz Sharif’s leadership, following a $7 billion stabilization program agreed with the International Monetary Fund (IMF) in September 2023—more than $2 billion of which has already been disbursed.

“Pakistan is a good story,” says Genna Lozovsky, Chief Investment Officer at Sandglass Capital Management, a firm known for investing in distressed emerging markets. “So good it’s not risky enough for us anymore.”

Despite the current military tension with India, Pakistan's economic trajectory appears largely intact, according to the Barron's.

The real threat, analysts say, lies not across the border but within.

Pakistan has received 24 IMF bailouts since 1950, highlighting a persistent cycle of economic volatility. Still, there are signs that this time might be different.

The current reforms were triggered by a near-default crisis in 2022–23, following catastrophic flooding, rising energy prices after Russia’s invasion of Ukraine, and intense political turmoil.

The ouster and jailing of former Prime Minister Imran Khan paved the way for Sharif’s disputed return to power in February 2024.

His government has since reconciled with the country’s powerful military, setting the stage for a period of relative political stability at least until the next general elections in 2029.

To tame inflation, the State Bank of Pakistan took bold action, raising interest rates from 10% to 22%—a move that pushed the economy into recession but successfully stabilized prices.

The country’s sovereign backers China, Saudi Arabia, and the UAE chose to roll over their loans without injecting fresh capital, signaling confidence but also caution.

Today, Pakistan’s macroeconomic indicators are surprisingly healthy.

GDP growth has rebounded to 2.5%, the current account is in surplus, and the country is running a rare primary fiscal surplus (excluding interest payments).

At present, Pakistan’s GDP grew by 1.73% in the second quarter of FY25, despite a slight decline of 0.18% in the industrial sector.

This growth was supported by positive performances in agriculture (1.10%) and services (2.57%), according to the National Accounts Committee.

Additionally, revisions increased the services sector growth from 1.43% to 2.21%, and the industrial sector improved from -1.03% to -0.66%, resulting in an updated overall growth rate of 1.34% for FY25 Q1, up from the previously reported 0.92%.

The 112th meeting of the National Accounts Committee (NAC) approved the updated GDP growth rates for Q1 and provisional growth for Q2 of FY25.

The GDP growth for Q1 was revised upward to 1.34% from the earlier estimate of 0.92%.

Agriculture growth was adjusted down to 0.74% due to lower production in crops like green fodder and forestry.

The industrial sector’s contraction eased from -1.03% to -0.66%, helped by better performance in electricity, gas, water supply, and construction, although mining and quarrying declined further.

Despite a drop in finance and insurance, improvements in transport, public administration, education, and health boosted services growth from 1.43% to 2.21%.

Overall growth rates stand at 1.10% for agriculture, -0.18% for industry, and 2.57% for services.

“That’s something we haven’t seen in many years,” notes Khaled Sellami, who manages emerging markets sovereign debt at Barings.

But short-term stabilization is only one piece of the puzzle.

Long-term development remains elusive. The current IMF program calls for politically sensitive reforms: increasing tax revenues by 50% and reducing electricity subsidies.

These are tough asks in a country where structural reform has long been resisted by vested interests and public pressure.

In contrast to India’s rapid climb in technology and pharmaceuticals, Pakistan still relies heavily on traditional exports like cotton, textiles, and cereals, which account for two-thirds of its trade.

While the IT outsourcing sector has shown some promise growing to $3 billion annually it remains a fraction of India’s $200 billion digital export market.

“Pakistan remains extremely fragile to external shocks,” says Alison Graham, Chief Investment Officer at Voltan Capital Management. “When there’s a rally, you have to get in early.”

Still, some investors remain hopeful. Sellami sees long-term potential and continues to hold a “constructive” outlook on Pakistan’s Eurobonds.

What has changed is that Pakistan no longer enjoys the strategic leverage it once held during the Cold War or the War on Terror. Its current allies China and the Gulf states have made it clear: no more blank checks.

That pressure might just be the incentive Pakistan needs.

“The government knows that if they stray from the path they’re on, external financing will disappear,” says Sellami. And with no room for missteps, that realization could be the strongest motivator of all.

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