KARACHI, May 23: Inflows of foreign direct investment into Pakistan crossed $3 billion in the first 10 months of the current year creating hope that the country might reduce its exceptionally high trade deficit.
The State Bank’s latest figures on Tuesday showed that Pakistan had become an attractive destination for foreign investment but the details revealed that the FDI was exclusively dominated by the telecommunication sector.
The country received $3.020 billion FDI during July-April 2005-06 almost double the last whole year’s figure. The country had attracted $1.524 billion during 2004-05 while in 10 months of the same year $891 million.
Some government officials believed that the FDI may touch $3.5 billion by the end of the fiscal year on June 30, 2006.
This record high FDI is encouraging for the government which looks helpless how to deal with ever rising trade deficit that has already reached to $9.430 billion in the 10 months of the current fiscal, sending a very strong signal to the economic managers that it could badly hit the hard-earned foreign exchange reserves.
The government is hopeful about meeting the high trade deficit and the requirements of balance of payment. Both the government and the State Bank assured that the deficit would be met.
“The government has not earned to cut the soaring trade deficit, instead it is filling the trade gap through selling of state assets, higher FDI and remittances,” said Aamir, an analyst at a local brokerage house.
Most of the analysts viewed the situation with grave concern and opined that financing the trade deficit was not sustainable and was a short-term arrangement.
“How long the government could sell its assets to finance the deficit? I believe there is a complete lack of strategy and there is no plan to minimise the deficit instead of financing,” said Aamir.
The highest inflows of foreign investment were noted from the United Arab Emirate (UAE). Pakistan Telecommunication Corporation (PTCL) has also been purchased by a UAE company for $2.4 billion and so far it had paid $1.4 billion for the deal. This deal pushed the overall inflows very high. The telecommunication sector alone attracted $1.7 billion investment during the period under review.
Pakistan has also received $3.629 billion in remittances from overseas workers during July-April 2005-06, which was higher than the target, and the government hoped that the total would cross $4.2 billion by the end of fiscal year.
“The government will easily get $7.5 billion by the end of the fiscal year as the FDI and remittances which substantially help the country to bridge the trade gap,” said Salman, another analyst.
Most of the analysts said the high oil import payments, which may reach $5.5bn by fiscal end, were the main reason for the widening of the trade deficit which completely offset the growth in exports during the year.
They said that there was no hope that the oil prices would fall in the coming months and maintained that imports of some other items should be curtailed.
“The idea of financing the import bills is not sustainable and negative impact of this idea would appear within next couple of years,” said Salman.
