Drop in FDI

The data on foreign direct investment (FDI) during the current year is highly depressing. According to latest figures released by the State Bank, Pakistan fetched FDI amounting to just dollar 601 million during July-October, 2018 as compared to dollar 1.12 billion in the corresponding period of last year, showing a decline of dollar 519 million or 46 percent. The inflow of portfolio investment also stood negative at dollar 296.5 million, down by 371 percent in the first four months of the current fiscal year. Similarly, total foreign investments, comprising FDI, portfolio investment and foreign public investment also plunged to dollar 331.3 million in July-October, 2018 compared to about dollar 1 billion in the same period of FY18 showing a huge decline of dollar 682 million. Surprisingly, inflows from China also totalled a mere dollar 335 million as compared to dollar 694.3 million in July-October, 2017 despite China-Pakistan Economic Corridor (CPEC)-related investments. Significant inflows were also recorded from the UK (dollar 64.5 million), the US (dollar 45 million), South Korea (dollar 43.9 million) and Switzerland (dollar 36.3 million). Month-on-month basis, inflows in October, 2018 were also significantly lower at dollar 161 million compared to dollar 345.6 million in the same month last year; a fall of 53.4 percent.
The huge fall in FDI during the current fiscal is of course a very bad news for the country and shows very clearly that Pakistan has lost attraction as a favourable destination for foreign investment lock, stock and barrel. During FY08, the country had received FDI amounting to dollar 5.41 billion which has been declining steadily since then. If the present trend continues, FDI during the current year cannot be more than dollar 2 billion. The continuous downward trend does not only indicate a negative perception of the country among foreign investors but is also disturbing for country's policymakers who were expecting the FDI to revive growth prospects of the economy, create job opportunities, and modernise the industrial base to enhance competitiveness of exports and bridge the wide gap in the external sector. However, the policymakers need not be very much concerned about substantial outflow of portfolio investment. Such an investment tends to leave the country very quickly and cause excessive fluctuations in the exchange rate of the rupee without making much difference on the productivity of the economy.
A slump in FDI could be attributed to a number of factors. It looks that foreign investors are avoiding the country due to political instability, bureaucratic hurdles, lack of good governance, corruption, poor infrastructure, militancy and overall poor law and order situation and continuing confrontation at the borders. The recent incident of abduction and killing of a Pakistani police official in Afghanistan is a reminder that the country is not safe for foreign investors. The fall of foreign exchange reserves to very low levels could also scare away foreign investors. While such impediments to FDI cannot be removed in a short period, the present PTI government is making all-out efforts to improve the external sector and shore up foreign exchange reserves to avoid default on foreign payment. It has devalued the rupee by a big margin and taken several other measures to increase exports and contain imports. In addition, the Prime Minister and Finance Minister have visited Saudi Arabia and China to seek assistance to tide over the situation. An IMF programme is also being negotiated and, if concluded successfully, could make resources available not only from the Fund but also from other multilateral institutions and ensure the foreign investors that Pakistan would follow a proper reform agenda to stabilise the economy and build enough foreign exchange reserves to pay for its liabilities. Hopefully, government authorities would be able to resolve foreign sector issues in due course of time and attract foreign investors to play a meaningful role in the economy of the country.