Despite increase, FDI not enough to help bridge deficit

Business forum says only political will, drastic steps can revive economy

LAHORE: An increase in foreign direct investment (FDI) in financial year 2016-17 (FY17) reflects improvement in the overall security situation, suggesting that investors have started coming back to Pakistan, says a business forum.

Pakistan attracted $2.4 billion worth of FDI in FY17, up 4.6%, according to data released by the State Bank of Pakistan (SBP).

After a very long time, the FDI has shown an upward trend. In FY16, Pakistan had got $2.305 billion in FDI, which rose $105.6 million in FY17.

In a statement, All Pakistan Business Forum President Ibrahim Qureshi said Pakistan’s liberal policies offered one of the most attractive investment regimes in the region.

Pakistan’s trade with the European Union had also grown substantially after the grant of GSP Plus status by the 28-nation European bloc, he said.

He praised the government’s resolve to tackle the challenges in European markets head-on, suggesting that it should devise strategies to promote Pakistani products.

He asked trade officers to take advantage of the opportunities offered by the China-Pakistan Economic Corridor and growth in Pakistan’s economy made possible by the strengthening of democratic institutions and improvement in security situation.

Quoting figures of the central bank, Qureshi said China topped FDI contributors as its investment accounted for about 50% of the total. Major inflows were also received from the Netherlands, Turkey, France and the UK.

China’s total investment in Pakistan stood at $1.23 billion in FY17 including $1.186 billion in FDI and $48.4 million in foreign portfolio investment.

Qureshi, however, pointed out that despite some increase in foreign investment, the inflows were not sufficient to help offset the widening current account gap. As a result, the country’s foreign currency reserves dropped over $1.7 billion in FY17.

According to the SBP, portfolio investment during the year was also unsatisfactory as it fell 66%.

“Only political will and drastic steps can revive the economy, which should have grown significantly and constantly for having a visible impact,” he said and advocated the need for enhancing the country’s tax base so that the tax-to-gross domestic product ratio could improve significantly from the existing 9% level.

Apart from these, tackling governance challenges, adverse security perception, political instability and promoting the role of foreign trade offices were vital for continued enhancement in foreign investment.

Published in The Express Tribune, July 23^rd, 2017.

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