We cheer the rise in foreign exchange reserves amid control on monthly imports and the stock exchange breaching its year end consensus forecast on the back of foreign inflows in local market, the dwindling foreign direct investment indicates shrinking global investor confidence in our economy. All debt inflows in the form of fiscal and balance of payment support are exerting pressure on tomorrows' external accounts. The lack of domestic resources to finance repayments has left the onus of BoP management on the FDIs.
However, 57 percent decline in FDI during the first two months of this fiscal year has left our economic managers with no choice but to revive the lost investors' confidence in Pakistan. But how can we attract foreign investment at the time of ailing domestic private flows - private sector credit off take has declined by Rs 81 billion (2.8 %) since the start of FY10.
We need to streamline our economic model to spur exports and focus on the efficient utilisation of domestic resources, both human and natural. The dilemma is that whatever we are generating from domestic resources and foreign funding is primarily being deployed for government's current expenditures.
The exuberance of foreign investments during FY06-FY08 due to banking sector consolidation is a case of history now, as the declining trend which followed thereafter in FY09 has continued at the start of FY10. The 57 percent yoy decline has mainly rooted from a virtual absence of historically high contributing telecom and financial sector (July-August FY09: 58%), recording an inflow of mere $9 million versus $476 million in the corresponding period last year.
Meanwhile, Foreign Portfolio investment (FPI), considered as hot investment with short-term horizon, has reversed its direction in last two months on account of improved short macroeconomic indicators and better credit ratings. An inflow of $61 million during the period partially offset the decline in FDI as total foreign private investment declined by 36 percent to $412 million.