Pakistan losing its charm as a favorable destination for overseas investors

April 22, 2019 (MLN): The current government has successfully managed to narrow down the Current Account Deficit (CAD) but what they failed to notice in the meanwhile was the continuous decline in the foreign investment.

It is a matter of great concern that the total foreign investment in the country has dropped substantially by 70% during 9MFY19, as compared to the same period last year. This has raised serious questions regarding the progress of current regime.

According to the latest data released by the State Bank of Pakistan (SBP), Foreign Direct Investment (FDI) in the country stood at $1.8 billion during July-March, 2019 as compared to $2.2 billion in the corresponding period of last year, showing a decline of $471 million or 21%.

Portfolio investment, representing investment in equity market also painted a negative picture as it was negative $409.5 million which is 245% lower, in the first nine month of the current fiscal year. Total foreign private investment thus fell by 35% to $1.4 billion compared to $2.1 billion in July-March of FY18.

These figures might be unsettling for the government as it struggles to arrange dollars through deposits and loans from friendly countries. During Jan- March FY19, Pakistan borrowed around $6 billion out of which $2 billion was acquired from KSA, $2 billion from UAE ($1 billion more expected) and $2.2 billion from China to aid Pakistan’s foreign exchange reserves.

In line with the trend since the announcement of CPEC, China remained the biggest investor in Pakistan as inflows from there came out at $406 million in 9MFY19, decreasing by 74%, from $1.6 billion during July-March last year.

Pakistan relies heavily on Chinese FDI which constituted 40% of the total inflows during this nine-month period which is not wise because slow down in the Chinese economy would have an adverse impact on their FDI in Pakistan.

The United Kingdom emerged as the distant second biggest source of inflows with FDI during 9MFY19 recorded at $150 million, which is lower by 37% from $239.2 million. Hong Kong came in third with inflows worth $107 million, followed by Japan $87 million, UAE $78.3 million, Netherlands $72.3 million and South Korea $68.6 million.

Highest outflow was to the US at $242.2 million, followed by Luxembourg $88.5 million with the two accounting for 81% of the total FPI.

In terms of sectors, the Construction sector witnessed single largest inflow of FDI (net) worth $385.4 million, followed by Oil & Gas Exploration sector $253.2 million. The financial business sector attracted $247.6 million, while Electrical Machinery received $126.6 million during 9MFY19

The power sector witnessed a highest outflow of $294 million, whereas, communication sector which had continued to attract significant investment for quite a long time, witnessed a net outflow of $141 million during the period under review.

The plunge in FDI during 9MFY19 is a clear indicator that Pakistan, of late, has lost its attraction as a favorable destination for overseas investors. Foreign investors seem to be avoiding the country due to policy uncertainty.

Copyright Mettis Link New