Foreign Direct Investment (FDI) registered a massive decline of over 51 percent during the first nine months of this fiscal year (FY19) owing to slowdown in CPEC inflows. According to the State Bank of Pakistan (SBP), Pakistan has attracted FDI amounted to $1.274 billion in July-March FY19 compared to $2.612 billion in corresponding period of last fiscal year (FY18), depicting a decline of 51.4 percent or $1.348 billion. During the period under review, FDI inflows were $ 2.515 billion down from $3.182 billion, while outflow surged by 121 percent to $1.242 billion.
Analysts said that FDI in Pakistan is slowing down after growing consistently over the last three years under CPEC projects. With completion of initially executed CPEC projects mainly power sector, investment from China is weakening. Most of Chinese investment has shifted to the transmission and distribution side, however, much this investment is lower than previous years, they added.
SBP statistics revealed that, net Chinese foreign direct investment declined 77 percent to $408 million in July-March FY19 against $1.587 billion in the same period of last fiscal year. However, despite massive drop, China is continued to dominate in direct investments with 32 percent share in net FDI inflows during the period under review.
The total foreign investment including FDI, portfolio and foreign public investment in the country decreased by 82.4 percent to $873 million in Jul-March FY19 compared to $4.954 billion in corresponding period of last fiscal year.
The foreign portfolio investment also witnessed an outflow of $409 million in first nine months of this fiscal year due to volatility at Pakistan's equity market on political uncertainty. Importantly, MSCI has dropped some Pakistani companies from the MSCI Global Standard Index in its semi-annual review. This caused a significant decline in the weights of Pakistani stocks in the MSCI EM index.
SBP has already pointed out that some measures addressing structural issues are needed in the wake of evolving developments in the economy and most importantly the high level of fiscal and current account deficits.
In order to improve productivity and increase exports, investment in human capital and technology is required. This strategy is long term but its impact on total factor productivity (TFP) is exponential.
SBP believed that these measures will not only attract FDI in Pakistan but with strategic diplomatic efforts, more skilled labour can be sent abroad and both cases, much needed foreign inflows would be materialized.
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