SBP holds exchange rate uncertainty accountable for drop in FDI

July 18, 2019 (MLN): The State Bank of Pakistan recently published a report on the state of Pakistan’s economy. The assessments and analysis provided in the report have pointed out PKR-USD exchange rate uncertainty, country’s weak fiscal standing, as well as downgrading of Pakistan’s credit rating by Fitch as the main culprits behind the deteriorating foreign investment in the country, as these factors have collectively miffed foreign investors’ perception of Pakistan’s economy.

According to the numbers released by the Central Bank, foreign investment in Pakistan has plunged from $5,680 million in FY2018 to $329 million in FY2019. In simple words, the investment has come down by 94% in just one year…

While details revealed that a major chunk of these investments came in the form of direct investment of $1,737 million, the amount was still almost 50% lesser as compared to that of last year.

Going with the conjectures of media as well as details provided by Central Bank, the fall in FDI is an outcome of inter-company loan payment worth $530 million made by a power-sector company during the year. Moreover, payments to parent companies by various subsidiaries operating in Pakistan also brought about the decline in FDI. 

Furthermore, an outflow of $415.2 million from equity markets, which is around 72% higher than last year’s outflow, added further fuel to the fire. Similarly, there was a divestment of $992 million from Foreign Public Investment, as opposed to investment of $2,450 in the fiscal year of 2018. 

 “The interest payments increased by $473.4 million to reach $1.6 billion during Jul-Mar FY19.In line with the recent external borrowing trends, the interest payments grew significantly during the past few years. Particularly, the interest payment to commercial lenders and bilateral donors went up during the period. Along with higher external debt stock, increase in the benchmark rate (i.e. LIBOR) was also responsible for higher interest payments during the recent years” the report stated.

Country wise, China once again emerged as the largest foreign investor in Pakistan, as it invested an approximate $1.1 billion over the year. This was followed by Norway, whose investment stood at around $225.8 million. United Kingdom took the third lead as the size of its investment amounted to $225.3 million. Other countries such as Netherlands, United Arab Emirates and United States also invested substantial amounts over the period.

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Posted on: 2019-07-18T11:36:00+05:00