FDI drops 52% as economic uncertainty bites

Foreign investors invested $1.37b in Jun-Apr FY19 compared to $2.84 last year

KARACHI: Foreign direct investment (FDI) dropped 52% to $1.37 billion in first 10 months (Jul-Apr) of the current fiscal year due to spread of economic uncertainty.

The FDI had been recorded at $2.84 billion in the same period of previous year, the State Bank of Pakistan (SBP) reported on Tuesday.

“Economic uncertainty prompted foreign firms to put their investment decisions on hold for the time being,” Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary General M Abdul Aleem said while talking to The Express Tribune. A long delay in finalising terms and conditions of an International Monetary Fund (IMF) loan programme worth $6 billion caused a deep economic uncertainty as Pakistan faced a major balance of payments challenge.

However, the government has now finally entered into the IMF loan programme. “This should restore confidence of international investors in Pakistan’s economy,” he said.

Foreign direct investment in Pakistan hits six-month high

Economy gets direction

Aleem said the much-awaited clarity on the economic front had started emerging after the central bank let the rupee depreciate and increased the key benchmark interest rate in the past three to four days.

The economic uncertainty had also led to a slowdown in investment from the largest foreign investor - China. “Pakistan is expected to witness an increase in China’s investment under the banner of China-Pakistan Economic Corridor (CPEC) after Prime Minster Imran Khan paid a visit to Beijing recently,” he voiced hope.

Foreigners were also expected to initiate new projects in Pakistan in different sectors including LNG import terminals, chemicals, telecoms and automobile, he said.



“Foreign investors have never lost hope in Pakistan, which remains a big promising market,” he said, adding “the timing of new investment projects has changed due to delay in clarity on the economic front.”

Cumulative investment turns negative

The overall foreign investment, including the FDI and investment in Pakistan’s stock and debt markets, turned negative for the first time in the current fiscal year.

Foreign direct investment plunges 51.5% to $1.3 billion

Pakistan recorded a net outflow of $22.6 million in the first 10 months under the head of foreign investment compared to a net inflow of $5.16 billion in the same period of last year. The foreign investment turned negative after Pakistan paid $1 billion for the matured Eurobond some time ago.

On the contrary, the country sold Eurobonds worth $2.5 billion in the same period of last year.

Apart from that, foreign investors accelerated the sale of shares at the Pakistan Stock Exchange during the period under review. Foreign portfolio investors divested $408 million in the first 10 months of FY19 compared to divestment of $136 million in the same period of previous year.

Country-wise FDI

China was the largest foreign direct investor in Pakistan as it invested $429 million in the first 10 months of FY19. This was, however, one-fourth of the total investment of $1.72 billion it made in the same period of last year.

The United Kingdom emerged as the second biggest investor as it invested $159.9 million compared to investment of $265 million in the same period of last year.

Hong Kong emerged as the third largest investor with investment of $132.7 million compared to $145.4 million in the corresponding period of last year.

Malta divested a net $116.6 million in the 10 months compared to no investment/divestment in the same period of last year.

Sector-wise FDI

The construction sector attracted the largest investment of $386.8 million in the first 10 months of FY19 compared to $562.7 million in the same period of last year.

The financial business sector invited the second largest foreign investment worth $256.6 million compared to $383.4 million last year.

On the contrary, coal power projects recorded a net outflow of $459.8 million compared to inflow of $663.4 million last year.

Telecommunications recorded an outflow of $162.1 million compared to outflow of $11.7 million last year.

Published in The Express Tribune, May 22^nd, 2019.

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