Foreign direct investment plunges 51.5% to $1.3 billion

Decline comes due to uncertainty about rupee, which was in correction phase against dollar

KARACHI: The foreign direct investment (FDI) plunged 51.5% to $1.3 billion in the first nine months (July-March) of the current fiscal year 2019, as investors remained indecisive to establish new projects owing to uncertainty in value of rupee.

Foreign businesses invested $2.6 billion in various productive sectors of the local economy in the same period of last year, the State Bank of Pakistan (SBP) reported on Thursday.

“The drop in foreign investment is seen as local currency (rupee) has remained in a phase of correction against the US dollar which did not suit foreign investors well,” a leading analyst told The Express Tribune.

The central bank has let the rupee depreciate by 16.4% to Rs141.39 to the US dollar in the current fiscal year compared to Rs121.49 on June 29, 2018.

“The rupee stands at equilibrium today and there seems to be no immediate need for a further deprecation in the rupee,” he pointed out. “However, trends suggest that Pakistan may continue to depreciate its currency by 2-5% per annum in months and years to come to maintain Real Effective Exchange Rate (REER) of rupee at equilibrium.

Another analyst said the drop in investment was seen as China slowed down investment in Pakistan in its multibillion dollar China-Pakistan Economic Corridor (CPEC) following a number of early harvest projects nearing completion.

“China’s investment will remain sluggish as Pakistan will mostly use local resources to set up hydel power projects under the second phase of CPEC,” he said.

Country-wise FDI

Despite the slowdown, China remained the single largest foreign direct investor in Pakistan.

It invested net $405.8 million in the nine-months, which was, however, 74.4% lower than $1.6 billion invested in the same period of last year.

During the period under review, United Kingdom remained the second largest investor with $149.8 million, 37.4% lower than $239.2 million invested in the same period last year.

Hong Kong invested $106.8 million compared to $145.4 million.

On the contrary, Malta divested $104.9 million compared to zero investment/divestment in the same period last year.

Sector-wise FDI

The oil and gas exploration sector attracted the single largest FDI (net) worth $253.2 million in nine months compared to $295.4 million in the same period last year.

Financial business received $247.6 million compared to $361.2 million, while electrical machinery attracted $126.6 million compared to just $13.8 million. Chemicals sector invited $113.9 million investment compared to $27.6 million.

On the contrary, coal power projects saw a divestment worth $459 million compared to an investment of $571 million. Telecommunications also divested $157.4 million compared to a divestment of $12.1 million only, the central bank said.

Published in The Express Tribune, April 19^th, 2019.

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