Brain drain, capital flight & MNCs exit Clutch Fire

Pakistan is facing a dangerous convergence of trends – the brain drain of skilled professionals, the exodus of multinational corporations, and local investors. What was once described as “temporary economic turbulence” has turned into a structural crisis. The roots of this malaise lie in over-taxation, policy inconsistency, and the state’s growing dominance over private credit and enterprise.

Over the past few years, Pakistan’s private sector – the real engine of growth and employment – has been pushed to the wall, while talented experienced professionals are seeking fair pay and stability abroad to avoid the burden of high tax rates. Major foreign companies have either sold their stakes or exited completely. Now, even domestic investors, manufacturers, tech entrepreneurs, and service providers are shifting operations to friendlier jurisdictions such as the UAE, Malaysia, Sri Lanka, Egypt and Bangladesh.

The government’s fiscal policy has turned into a war on the productive class, proving anti-wealth generation and causing forced tax collection from the existing taxpayers. The salaried middle class, professionals, proprietorships, and Association of Persons (AOPs) are now taxed at rates exceeding 35-45%, while inflation-adjusted incomes are declining. Private limited companies face one of the highest effective tax burdens in South Asia when combined with super tax, the minimum tax on turnover, and withholding obligations.

Listed companies already squeezed by falling demand are treated no better. The result is predictable: investment is drying up, job creation has stalled, and poverty is rising more than 50%. The very sectors that once symbolised Pakistan’s middle-class growth – construction, automobiles, textiles and telecom – are now shedding workers or halting expansion.

When purchasing power collapses, even the world’s largest consumer base becomes meaningless. LSM are on the verge and banks are making hefty money by lending to the government, not for growth to the private sector. Policy rate is stubbornly at 11%, inflation is coming back, rising trade deficit and limited foreign reserves are showing policy errors.

Private credit – the lifeblood of industrial and commercial activity – has almost vanished. Banks have become risk-free financiers, preferring to park funds in high-yield government papers rather than lending to businesses. Data from the State Bank of Pakistan (SBP) shows that over 75% of fresh banking credit in FY2025 went to government borrowing. Small and medium enterprises (SMEs) and exporters are left starved of working capital. This crowding-out effect has crippled investment, innovation, and entrepreneurship.

When banks lend only to the government, and the government spends mostly on non-productive or politically driven projects, the outcome is rapid de-industrialisation and that is exactly what Pakistan is experiencing.

The tragedy is that the tax net still excludes large segments of the undocumented economy. Instead of widening the base through digitisation, retail documentation, or agricultural taxation, the state has chosen the easier path, squeezing the compliant taxpayers until they break.

Pakistan’s domestic market of 250 million people should have been an investor’s paradise. Instead, shrinking disposable incomes, inflation-driven consumption compression, and unemployment have eroded consumer demand. Industries from FMCG to cement, steel and automobiles are operating at 30-50% capacity utilisation.

When global giants pack their bags, and local manufacturing companies shift their units to Sri Lanka, Bangladesh, Egypt and other countries, it is an alarm bell, which shows a structured policy error. The question arises: Is Pakistan losing global competitiveness, and opportunities for MNCs and home-grown champions? Are our import, energy tariffs and taxes too high to do business? Yes, it is true, many local and foreign investors blame openly that these are impediments to new investments.

The exits are not isolated events; they reflect deeper fault lines in Pakistan’s economic framework: Currency volatility: A rapidly depreciating rupee makes it difficult for global companies to repatriate profits. For instance, PKR has lost over 50% of its value in just three years, severely squeezing MNC margins. Regulatory hurdles: Cumbersome taxation, unjust tax, delayed judicial system, inconsistent policies, and bureaucratic red tape discourage long-term investment. Pakistan ranks low on global “Ease of Doing Business” indices.

Import restrictions: Repeated bans and restrictions on imports of finished goods, raw materials and machinery have paralysed the operations of foreign brands dependent on global supply chains. Shrinking middle class: With inflation hovering above 20% for much of the last two years, consumer purchasing power has dropped, eroding demand for premium global branded products.

In essence, multinationals are not just leaving because of profitability concerns, they are fleeing because of uncertainty. Paradoxically, this vacuum is proving to be fertile ground for local companies. Pakistani firms, better adapted to the harsh business climate, are seizing the opportunity.

FMCG brands: Local brands have emerged, built strong consumer trust, often rivaling imported names. With P&G’s Gillette gone, local shaving brands are aggressively expanding distribution. Pharmaceuticals: After the exit of foreign pharma companies, Pakistani companies are filling the void with affordable generics, expanding their foothold domestically and abroad. These shifts suggest that Pakistan is not left vulnerable; it may actually be witnessing the beginning of a “localisation wave” and urgently need a sigh of tax relief.

Consumers, too, are at a crossroads. Once dazzled by the prestige of global brands, today’s Pakistani shopper is increasingly price-sensitive. Moreover, there is a growing “buy local” sentiment.

De-industrialisation and the flight of capital: The exodus of MNCs is not a coincidence; it is a verdict on Pakistan’s deteriorating business climate. When MNCs exit, they do not just take capital, they take back foreign investors’ trust.

Local investors are following suit. From textile units shifting to Bangladesh to IT startups relocating to Dubai, the message is clear: Pakistan’s policy framework punishes compliance and discourages success. In contrast, regional competitors have lowered corporate tax rates, simplified procedures, and offered predictable incentives. Bangladesh and Vietnam are now magnets for investors once interested in Pakistan.

Pakistan’s policymakers have become fixated on revenue collection, rather than wealth generation and economic expansion. Every budget increases tax rates, while development spending is cut to service debt. The Federal Board of Revenue has turned into a collection agency with little regard for growth or investment.

The lack of reforms in energy pricing, logistics, and regulatory enforcement has made Pakistan one of the most expensive production bases in the region. Without an investment-led growth model, Pakistan cannot generate the jobs or incomes necessary to sustain even basic social stability.

To arrest this decline, Pakistan must adopt a pro-investment, pro-jobs and pro-export policy: 1. Cut tax rates and broaden the base, reduce the burden on documented sectors while bringing the informal economy into the fold through digital tracking and incentives. 2. Revive private credit, limit government borrowing from banks to free liquidity for business lending. 3. Stop political projects and redirect provincial and federal spending towards productive, job-creating ventures. 4. Under industrial renewal policy, offer time-bound incentives for export-oriented manufacturing, including the local assembly of EVs, solar, and agro-processing industries on low-cost land.

The writer is a former vice president of KCCI, commodities and int’l trade expert