KARACHI: The Middle East war is prompting foreign investors and other businesses in Pakistan to delay investment decisions, with around 70-80 percent of firms postponing or revising expansion plans amid rising inflation, higher fuel costs and growing uncertainty, according to a survey released on Tuesday.
The findings come days before Pakistan presents its annual budget on June 5 and as the government seeks to sustain an economic recovery under a $7 billion International Monetary Fund (IMF) program approved in September 2024. The conflict has heightened concerns over oil prices and supply chains in Pakistan, which imports much of its energy needs and remains vulnerable to external shocks.
The latest Business Confidence Index (BCI) survey, conducted by the Overseas Investors Chamber of Commerce and Industry (OICCI), showed overall business confidence falling nine percentage points to a positive 13 percent in the second quarter of 2026, down from 22 percent in the previous survey.
The OICCI conducts the survey twice a year and says participants represent approximately 80 percent of Pakistan’s gross domestic product.
“The ripple effects of the Middle East conflict are being felt across every sector, from investment freezes to supply chain restructuring,” M. Abdul Aleem, Secretary General of OICCI, said in a statement.
’While the fundamentals of the Pakistani market remain intact, restoring business confidence will require policy stability, cost relief and a concerted effort to shield the economy from prolonged geopolitical uncertainty.”
The survey found that businesses across all sectors were reassessing expansion plans and supply chains as they sought to reduce exposure to disrupted trade routes and rising operating costs.
Around 70-80 percent of respondents said they were delaying or revising investment decisions, while the survey’s New Investment Index fell by 10 points to just 2 percent, indicating a sharp slowdown in planned capital spending.
The services sector recorded the steepest decline in confidence, falling 20 percentage points to a positive 14 percent.
Manufacturing confidence dropped seven points, while retail was the only segment to improve, rising three points to a positive 20 percent.
Businesses also reported a significantly weaker view of the global economy. The survey’s global business situation indicator fell by 31 points, with respondents across sectors expecting disruptions linked to the conflict to continue for more than six months.
Looking ahead, 34 percent of respondents said they expected business conditions to worsen over the next six months, up from 22 percent in the previous survey.
When asked about the biggest structural risks facing businesses, 84 percent cited inflation, followed by high taxation at 79 percent. Concerns about currency stability and inconsistent government policies were each cited by 61 percent of respondents.
The findings add to growing pressure on policymakers as they prepare the FY27 budget, with businesses calling for tax relief and lower energy costs while the government remains under pressure to meet IMF-mandated fiscal targets.
Despite the broader decline in sentiment, confidence among OICCI member companies, which represent many of Pakistan’s largest foreign investors, remained relatively resilient, improving slightly to a positive 28 percent.
The survey also pointed to longer-term opportunities despite near-term uncertainty, with foreign investors showing growing interest in adopting generative artificial intelligence across business operations, technology platforms and workforce development initiatives.
