FDI reduction

Foreign Direct Investment (FDI) in August 2018 markedly reduced by 35% in anticipation of announcements regarding changes in economic policy. A sharp decline was also experienced prior to the elections out of fear of instability towards the end of the outgoing government and the caretaker government’s tenure. The State Bank elucidates that in August 2017, the FDI stood strong at $246.8 million whereas in August 2018, FDI remained at a conservative $160.1 million. Although August 2018’s figure is slightly higher than the pre-election level, which was $152.7 million around March 2018, optimism by foreign investors requires a boost.

Economic policies will have to be guided by careful calculations. With reduced funding via aid and loans by foreign entities and Pakistan’s heightened ego with PM Imran Khan carrying the torch, the country will still have to take a humble approach. The trade deficit in exports versus imports needs focus and the rupee which continues to fall against the US dollar needs rescuing. Policies will have to be lenient initially to welcome maximum funding and investment into projects not only by China, Switzerland and the UK, but others. Even though more sensible decisions have been taken by the new government, the ego factor will have to be toned down to invite more investors. A sharp decline of 40% between July-August 2017 and July-August 2018 renders many trade sectors vulnerable. The former government did a fine job of attracting FDI but the denouement of its saga perhaps shook foreign confidence at a baseline level.

On the contrary, some might say the PML-N laid down the country’s pride and bowed to certain countries to preferentially develop trade routes on Pakistani soil. Thus, a more balanced approach will be required where policies allow for mutually beneficial economic relationships, which is something that seems to be the goal for the current PM. While his experience may be limited in the area of economic policy, his intentions are correct — to do what is best for Pakistan.

Published in The Express Tribune, September 17^th, 2018.

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