FDI outlook: simply not good!

Pakistan’s has never really had a very impressive foreign investment scorecard. The country has never been able to get closer to the highs of over $5 billion in FY07 and FY08; and in the last decade FDI has remained between $2-2.7 billion annually. Unfortunately, the foreign investment situation currently has no bright prospects as the country economically is in a greater mess than ever before.

Foreign direct investment during the ongoing fiscal year has been abysmal and the recent data released by the central bank shows that net FDI for 7MFY23 went down by 44 percent year-on- year where FDI inflows dipped by 27 percent while outflows increased by 26 percent year-on- year.

However, monthly data shows that FDI in the latest month – January 2023 witnessed an uptick after a long time. Jan-23 Net FDI was up by 102 percent year-on-year, while month-on-month the net FDI in Jan-23 was the highest after seven months. The rise in Jan FDI was not only due to higher foreign direct inflows but also because of lower outflows. Sector wise, the growth in Jan-23 FDI was due to the increase in net inflows in the power sector and the food sector followed by the financial business sector. Power sector accounted for 35 percent of net FDI in Jan-23, followed by 26 and 22 percent share of food and financial business. In the power sector, the coal power attracted majority FDI (75 percent). Country wise, China accounted for 31 percent of net FDI of $226million in Jan-23, followed by Japan’s 27 percent. Together the two accounted for over 58 percent of net FDI.

The agony in FDI is exacerbating amid economic crisis, and continued political uncertainty. Not that FDI was pouring in the country a year back, but the current uncertainty is adding fuel to the fire. Investment climate and business confidence is at its lowest with the economy at the brink of default and external finances deteriorating, companies close to shut down due capital controls and LC issues, and IMF bailout program being stalled for so long. Things have never been this messy; its no-brainer to expect FDI to continue to remain timid and slothful as the coming months – or even year – is going to be more challenging than any other in the recent past.