A recent survey indicates that the ongoing Middle East conflict is causing a significant number of foreign investors and businesses in Pakistan to postpone or revise their investment plans. According to the Business Confidence Index (BCI) survey released on Tuesday by the Overseas Investors Chamber of Commerce and Industry (OICCI), approximately 70-80 percent of firms are delaying or adjusting their expansion strategies due to rising inflation, higher fuel costs, and growing economic uncertainty.
Survey Highlights
The survey, conducted twice a year, represents around 80 percent of Pakistan's gross domestic product. It shows that overall business confidence has dropped by nine percentage points to a positive 13 percent in the second quarter of 2026, down from 22 percent in the previous survey. The findings come just days before Pakistan is set to present its annual budget on June 5, as the government aims to sustain economic recovery under a $7 billion International Monetary Fund (IMF) program approved in September 2024.
Impact of Middle East Conflict
M. Abdul Aleem, Secretary General of OICCI, stated that the ripple effects of the Middle East conflict are being felt across all sectors, from investment freezes to supply chain restructuring. He emphasized that while the fundamentals of the Pakistani market remain intact, restoring business confidence requires policy stability, cost relief, and concerted efforts to shield the economy from prolonged geopolitical uncertainty.
The survey found that businesses across all sectors are reassessing their expansion plans and supply chains to reduce exposure to disrupted trade routes and rising operating costs. The New Investment Index fell by 10 points to just 2 percent, indicating a sharp slowdown in planned capital spending.
Sectoral Analysis
The services sector recorded the steepest decline in confidence, falling 20 percentage points to a positive 14 percent. Manufacturing confidence dropped by 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, with the global business situation indicator falling by 31 points. Respondents across sectors expect disruptions linked to the conflict to continue for more than six months.
Future Outlook
Looking ahead, 34 percent of respondents expect business conditions to worsen over the next six months, up from 22 percent in the previous survey. When asked about the biggest structural risks, 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.
Pressure on Policymakers
The findings add to growing pressure on policymakers as they prepare the FY27 budget. Businesses are 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.
Long-term Opportunities
The survey also pointed to longer-term opportunities despite near-term uncertainty. Foreign investors are showing growing interest in adopting generative artificial intelligence across business operations, technology platforms, and workforce development initiatives.
