KARACHI: Current fiscal year comes to an end this month, but foreign direct investment (FDI) still lags last year’s low inflows and has fallen 5% in the first 11 months of the 2021-2022 period.

According to State Bank of Pakistan data released on Friday, the country received a total of $1,596.8 million in the July 22-May financial year compared to an inflow of $1,679.2 million in the over the same period last year, reflecting a decline of 4.9%.

Admissions in May, however, fell 29% to $141.2 million from $199.2 million in the same month last year.

Pakistan could not attract foreign investors, rather inflows declined to the lowest level compared to inflows to countries in the region.

Admissions plunge 29% to $141.2m in May

Although there are many reasons for low FDI inflows, including political uncertainty and widening current account deficit, the inclusion of Pakistan in the Financial Action Task Force (FATF) gray list has seriously harmed the image of the country abroad.

While the country has managed to meet all the money laundering and terrorist financing requirements, hopes are high that Pakistan will soon be off the gray list.

Sources in the financial community believe that an exit from the gray list would surely improve the country’s image abroad and that investors could change their minds about Pakistan. However, they also see the depletion of foreign exchange reserves, the massive depreciation of the local currency against major currencies, including the US dollar, and widening trade and current account deficits as key challenges for the coalition government. led by the PML-N to attract foreign investors.

The situation is not good since the biggest investor, China, has limited its investments in Pakistan. In FY22 July-May, FDI from China was still the highest, but half of that was in the same period last year.

FDI from China was $373.1 million in the 11 months compared to $719.5 million in the same period last year; almost half. FDI inflow from the United States amounted to $240.9 million in the 11 months, compared to $122.4 million last year. However, the $186.6 million outflow from portfolio investment reduced it to $54.3 million.

Other large inflows were 137.3 million Hong Kong dollars, 132 million Swiss dollars, 130 million United Arab Emirates dollars and 104.9 million Singapore dollars.

In the 11 months of FY22, a major investment was made in the energy sector ($567 million), followed by the financial affairs sector ($373 million) and oil exploration and gas ($188 million).

Posted in Dawn, June 18, 2022