A substantial increase in FDI during the first five months of FY20 is of course a very positive development for the country and is a strong reflection of growing confidence of foreign investors in the resilience and soundness of Pakistan's economy. Such a confidence seems to have been boosted due to the resolve of the present government to remove basic weaknesses of the economy, in particular its unwavering efforts to reduce the twin deficits to sustainable levels, and its loan agreement with the IMF which almost guarantees the implementation of a series of reforms during the programme period. Needless to say that the increase in foreign investment would enhance the productive capacity of the economy, help to bridge the gap between domestic savings and investment in the country, upgrade the level of technology, accelerate the GDP growth rate, increase foreign exchange reserves of the country, provide more employment opportunities and reduce poverty. However, while overall foreign investment would appear to be very promising, this development should be taken with a pinch of salt in our context. Firstly, most of the increase in investment was due to some one-off payments and higher portfolio investment together with some abnormal inflows in public debt instruments like T-bills and PIBs. These kinds of inflows generally do not add to the productivity of the economy and could leave the country suddenly when the domestic macroeconomic indicators are not favourable or net returns in other countries become relatively more attractive than those offered in Pakistan. Secondly, though the aggregate amount of foreign investment has shown a healthy improvement during the year, we should not be very much satisfied with this trend as the total amount of FDI is still too small to make much difference on the overall development of the country and is also meagre as compared to FDI inflows in other countries of the region. And thirdly, it is a well-known fact that the level of FDI in the country continues to be dismal and mostly in quick yielding enterprises despite providing all kinds of incentives and inducements to foreign investors. All of this shows that there is something seriously wrong with our policies. As Pakistan cannot hope to make sufficient progress without adequate level of foreign investment, it is important for the policymakers to thoroughly analyse the reasons for the low levels of FDI and undertake necessary measures to improve its inflows significantly to play a much greater role in the development of the country.

Copyright Business Recorder, 2019