KARACHI: Pakistan’s foreign direct investment (FDI) fell 27.4 percent in the seven months of this fiscal year, hurt by dropping investor confidence in the economy due to the stalled International Monetary Fund (IMF) loan programme and slippage in global growth amid the coronavirus pandemic.
Data issued by the central bank showed on Monday that the country attracted $1.145 billion in FDI in July-January FY2021, compared with $1.577 billion in the corresponding period of last fiscal year.
January’s FDI inflows were $192.7 million, down 12.24 percent from a year ago. FDI stood at $219.6 million in January 2020.
The SBP’s data showed that net FDI inflows from China declined 19.85 percent to $402.8 million in seven months of FY2021, while investments from Netherlands rose to $122 million from $61 million.
FDI from Hong Kong decreased to $105.2 million from $119.4 million. The country saw an outflow of $25.8 million from the Norwegian firms in July-January FY2021 against an inflow of $288.5 million in the same period last year.
Oil and gas explorations’ inflows were $136.7 million in the seven months under review, down 26.7 percent a year earlier. FDI in the trade sector totalled $118 million, compared with $22.3 million in the corresponding period of FY2020.
Power sector was the largest recipient of FDI as investment from China to finance the energy projects under the China-Pakistan Economic Corridor remains intact. Work on 13 energy projects to generate electricity under the CPEC throughout the country is underway.
FDI in this sector rose to $475.8 million in July-January FY2021 from $373.1 million a year ago. Telecommunications sector pulled $23.9 million FDI from the country in the seven months of this fiscal year, compared with an inflow of $432.6 million last year.
FDI in financial businesses increased to $181.3 million from $178.9 million. Analysts said the confidence of foreign investors was badly impacted by the pandemic. The trouble in input supplies, increasing uncertainties and liquidity constraints for the multinational firms weighed on the existing FDIs with investments into new projects also withheld worldwide amid uncertainties.
FDI in Pakistan was largely concentrated in long-term projects. So, most of the FDI investments were coming from China to fund the CPEC-related projects. Analysts foresee the prospects of Pakistan’s FDI as positive due to the resumption of the $6 billion IMF bailout programme for Pakistan, improvement in global economy and better domestic economic outlook on the back of measures taken by the State Bank of Pakistan.
Tangent Capital CEO Muzammil Aslam said, “IMF programme suspension and subdued global economic environment are the main cause of slowdown. Going forward, with the revival of the IMF programme and better economic outlook led by vaccination will improve FDIs.”
The SBP has introduced three new categories of investment abroad under its revised policy governing equity investment abroad and banks have been authorised to allow remittances under newly introduced categories.
The SBP’s revised policy would enable the Pakistani fintech and start-up companies to channelize foreign direct investment in the country by establishing a holding company abroad against remittance of up to $10,000 and subsequent swapping of shares to mirror the shareholding of local company in the holding company.