FDI falls 20pc to $203.1mln in July-August

KARACHI: Pakistan’s foreign direct inflows dropped 20.3 percent to $203.1 million in the first two months of the current fiscal year of 2021-22, the central bank’s data showed on Friday.

The July-August FY2021 inflows were $254.8 million.

The country drew $113.2 million in FDI in August 2021, compared with $126.1 million in the corresponding month of last year.

The decline in the FDI inflows is driven by reducing investments from the financial sector. Net FDI from the financial business fell to $39.1 million in July-August FY2022 from $82.4 million in the same period of last year.

The State Bank of Pakistan’s data also showed a large part of the direct investment arrived from China, which remained the single largest source of FDI in the country.

Net investment inflows from China rose to $53.9 million in July-August FY2022 from $40.8 million a year ago and investment from the United States increased to $32.2 million from $15.4 million. FDI from Singapore rose to $23 million from $4.7 million a year earlier.

The power sector continued to dominate the FDI inflows, amounting to $85.8 million in two months of the current fiscal year, compared with $62 million a year ago.

Oil and gas exploration inflows were $35.5 million between July and August, up $32.3 million from a year earlier.

Global direct investment has been constrained ever since the outbreak of the coronavirus with flows declining sharply in 2020 to level that was even lower witnessed during the last global financial crisis of 2008-09.

Nonetheless, the overall weak global trends were also partially responsible for the tepid FDI inflows to Pakistan. At the same time, some indigenous factors were also at play.

First, there were a lack of triggers that could have stimulated fresh investments into that sectors that have been receiving higher FDI over the past few years such as telecom and power.

In case of telecom sector, cellular service firms had borrowed from their foreign parent companies last year to deposit their licensce renewal fees with the government.

These firms did not need to make large licensing payments this year and did not need receiving any significant fresh investments from abroad for other business or operating activities.

In fact, some of the firms repaid their intracompany loans this year which slightly increased the gross FDI outflows from telecom sector this year.

In case of the power sector also, FDI was nearly unchanged. Some CPEC-related power generation and distribution projects, which had received significant FDI last year, received relatively lower investments this year as the projects near completion, whereas FDI outflows were also recorded from some power projects.

Furthermore, some industry-specific developments such as the volatile oil prices and corporate consolidation at the global level, triggered some portfolio rebalancing by investors.