Nothing is going in favor of the investment climate in the country. Foreign direct investment in the country is drying up fast. For 8MFY23, net FDI was not even $1 billion. The country attracted net FDI of $784 million, down by 40 percent year-on-year from $1.3 billion in 8MFY22. While outflows have been higher in some months and lower in others, FDI inflows have been continuously falling. FDI inflows for 8MFY23 were down by 27 percent year-on-year. Net FDI in February 2023 increased by 10 percent year-on-year, which might not be considered any achievement as the base is small, and the slight uptick does not signify any improvement in the FDI flows to the country.
Besides China, and that too because of CPEC, no country has made any significant investment in the country in a long time. And the recent economic and political turmoil has created a vacuum where the prospects of foreign investment are not moving the needle. Political instability and investment cannot co-exist, which is happening in Pakistan lately as political volatility and ensuing economic crisis are keeping investors at bay.
Uncertainty since the last year is one factor that is affecting foreign investment. It makes no sense for foreign investors to invest in a country when its risk profile and credibility in shambles. But then, the country's environment has mostly been unconducive for investment – whether local or foreign. The high-interest climate these days and the high cost of business make the country unattractive to investors. Along with political instability and economic slowdown, a governance structure has always been a hindrance for investors as they prefer transparency and accountability – both of which are lacking in the system. The investor-friendly climate is critical –policies such as tax breaks, incentives, sector-specific subsidies, free trade zones, and business regulations are only marginally or partially investor friendly. These issues continue to linger and have added to the current turmoil making it hard for FDI to find any major leap.
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