Pakistan’s Foreign Investment Drops 19%, FDI Increases Despite Challenges

KARACHI: Pakistan’s foreign investment declined by 19% to $1.3 billion during the first nine months of this fiscal year through March, recent data from Pakistan’s central bank said, with analysts attributing the slump to political uncertainty and lack of ease of doing business.
As per the State Bank of Pakistan’s (SBP) latest data, foreign direct investment (FDI) in Pakistan rose by 14% to $1.64 billion in the same period, compared to $1.44 billion the country attracted a year ago. 

However, the total foreign investment also includes foreign portfolio investment (FPI), which are foreign investments in a country’s stocks, bonds and other securities. The SBP said FPI dropped by a staggering 514% as foreigners sold $269 million of the country’s equity and debt during July-March this fiscal year. Last year, foreign investors were holding $65 million in Pakistan’s stocks and bonds during the same period.

Pakistan’s government has said the country is on its path to economic progress. Pakistan formed the Special Investment Facilitation Council (SIFC) in 2023 after coming to the brink of a sovereign default. The SIFC is a civil-military body that aims to attract foreign investment in minerals, agriculture, livestock, tourism, defense and other important sectors.

“Although the SIFC has been instrumental in generating leads for foreign investment, the actual materialization of flows has been weak due to hurdles in executing these,” Shankar Talreja, director of research at brokerage firm Topline Securities Limited, told Arab News on Friday. 
Prime Minister Shehbaz Sharif has tasked his government to increase exports to $60 billion in the next five years, seeking to boost its foreign exchange reserves.  
However, the country’s foreign reserves have declined to $10.6 billion during the week ended Apr. 11, as per the SBP’s figures. The amount is hardly enough to cover two months of imports whereas the International Monetary Fund (IMF) wants Pakistan to increase its reserves to support three months of imports. 
Pakistan’s Information Minister Attaullah Tarar and the finance ministry’s spokesperson Qamar Sarwar Abbasi did not respond to Arab News’ request for comments. 
While Sharif’s government has signed various memoranda of understanding (MoUs) with several countries over the past year, it has not been able to attract even $3 billion in investment since the last two decades, since FY09, as per the central bank’s data. 
Talreja said some foreign companies wanted to make major investments in Pakistan’s refinery sector but frequent changes in the country’s tax structure led to a “hue and cry” from them.
“The ease of doing business is quite low in Pakistan due to higher taxes and frequent bubbles in the economy led by inconsistent macro policies,” Talreja explained. 

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‘ZERO GROWTH IN PER CAPITA INCOME’

Financial analyst Sana Tawfik said besides political uncertainty and a high cost of doing business, Pakistan’s fragile balance of payment position has been a permanent concern for risk-averse investors. 

These investors have seen Islamabad approach the IMF for frequent financial bailouts whenever it has tried to achieve an import-driven 5-6 percent growth, she said. 
“Pakistan’s macroeconomic situation is no doubt improving but then we have to see how sustainable this improvement is,” Tawfik, the head of research at Arif Habib Limited, told Arab News. 

This news is sourced from Arab News and is intended for informational purposes only.