27 percent decline in FDI

Foreign direct investment (FDI) fell by 27 percent during five months (July-November) of current fiscal year, mainly due to lack of foreign investors' interest owing to adverse law and order situation and energy crisis. The State Bank of Pakistan on Friday said that net foreign investment, comprising foreign direct investment (FDI) and portfolio investment narrowed down by 59 percent during the July-November of fiscal year 2011-12 (FY12).
With the current decline, net inflows of foreign investment in Pakistan decreased to $305.4 million in the five months of current fiscal year as compared to $749 million in corresponding period of last fiscal year, depicting a decline of $443.6 million.
Although, during the period under review, both components of net foreign investment posted decline, major decline was witnessed in portfolio investment. FDI fell by 27.1 percent, or $147.4 million, to $419.8 million, in July-November of FY12 compared with $567.2 million in same period of FY11.
The second component of foreign investment--portfolio investment--posted a decline of 166 percent because of outflows from the country's equity market. Portfolio investment stood in a negative position and an outflow of $114.5 million was registered in first five months of current fiscal as against inflows of $172.5 million in corresponding period of last fiscal year.
Similarly, total foreign private investment with privatisation posted a decline of 59.3 percent to $306.5 million from $753.6 million during the period under review. According to analysts, adverse law and order situation, lack of infrastructure and rising energy shortfall were responsible for massive decline in net foreign investment.
It may be mentioned here that Pakistan's investment rate was only 13.4 percent at end of last fiscal year, which was lowest since FY74. The low saving rate, coupled with wary foreign investors led to record low investment rate in the country. As a result, the contribution of investment to aggregate demand also declined sharply from an average of about 20 percent during 2001-08 to 3.7 percent in FY11.
The State Bank had already reported in its annual report that Pakistan had fared poorly when compared to its neighbours in South Asia, because of domestic and global factors. However, the SBP said it believed that the domestic issues are more decisive and chronic. These include collapse of fixed investment, acute energy shortages, urban violence and lawlessness, poor physical infrastructure, and institutional fragility.