July-April FDI falls 1.6pc year-on-year to $1.46bn

Our Correspondent
Saturday, May 21, 2022

KARACHI: Foreign direct investment (FDI) into Pakistan rose one percent to $171 million in April, bringing the current fiscal year’s total to $1.456 billion, the central bank said on Friday.

FDI in the first 10 months of this fiscal year fell 1.6 percent compared with the same period of last year.

The power sector, which gained major share in net FDI over the past few years, experienced a sharp decline as investment into the sector fell 36 percent to $528 million in July-April FY2022. The overall share of the power sector in the FDI stood at 36 percent.

However, the FDI in the financial business rose 65 percent to $347 million. Oil and gas exploration sector attracted $185 million in FDI in 10 months of FY2022, down 9 percent from a year earlier.

Though the size of the Chinese inflows is falling, it remained the largest investor with net FDI of $356 million in July-April FY2022. These inflows stood at $700 million in the corresponding period of last year.

The United States ranked the second largest investor with net FDI of $223 million. The US firms invested $113 million in July-April FY2021.

Analysts linked a fall in Chinese FDI to the completion of the power projects under China Pakistan Economic Corridor (CPEC). The fresh investments have reduced under CPEC.

Besides, the growing uncertainties at the economic and political fronts are the main reasons behind the slowdown in FDI flows to the country. The months’ long political upheaval and deteriorating economy is hurting global investor confidence. Significant uncertainties about the resumption of the International Monetary loan programme and lack of clarity about the future economic policy could hamper FDI in coming months.

Overall, foreign investment in the country declined by 57.1 percent to $1.570 billion during July-April of FY22, against $3.663 billion in the corresponding period of last fiscal year.

“Pakistan’s precarious macroeconomic position is not an overnight phenomenon; years of populist and short-sided policy making has made countries' fiscal and external account dynamics unsustainable,” Alfalah Securities said in a client note.

“The recent global commodity price boom just exacerbated and exposed the fragility.”

The report said budget deficit for FY2022 is projected to exceed R5.5 trillion (10 percent as percent of gross domestic product), which is the highest in the history of the country. “Gross external financing requirement for 4QFY22 ranges around $8.3-8.5bn, the SBP’s foreign exchange reserves barely cover these up.”

“The current government, not wanting to damage its political capital, is also not passing on fuel prices to the consumers. This has resulted in an impasse with the IMF, and has created a panic like situation in the forex and equities markets.”