May 18, 2008	Sunday	Jamadi-ul-Awwal 12, 1429

KARACHI, May 17: Despite discouraging economic and political indicators, foreign direct investment (FDI) improved substantially in April to take the total close to $3.5 billion in 10 months of the current fiscal year.

The country, with a high risk profile, record trade deficit and trapped by domestic record fiscal deficits, is still attractive for foreign investors to make profits out of this situation.

The State Bank on Saturday reported that foreign direct investment (other than investment in stock market) reached $3.481 billion in 10 months of 2007-08. This was 16 per cent lower than last year.

However, analysts believe that uncertainty on political front and record food inflation are the real factors behind ‘negative’ situation.

Analyst Abid Saleem was of the view that these two major reasons paint a bleak picture of economy, that is against reality.

A couple of days ago, the State Bank reported that remittances sent by overseas Pakistanis increased by 19 per cent in 10 months compared to corresponding period of last year, reflecting the ‘intact confidence’ of overseas workers.

The SBP data showed that the highest FDI in 10 months came from the US. The FDI of US increased by 70 per cent to $1.161 billion in the last 10 months. During the same period last year, FDI from the US was $682 million.

Analysts said foreign investment would help the country improve its strength against the over-loaded trade deficit and support the weakening local currency.

The purchasing power of the local currency sharply dropped in the wake of very high inflation of over 17 per cent and day-to-day devaluation of rupee against the US dollar.

However, market experts felt that the inflow of FDI was limited to a few sectors and mostly to services sector. Inflows were highest in telecommunications, financial sector and oil and gas exploration.

The FDI was helping the government cut the load of current account deficits, but not helping economy to diversify itself, said a senior banker.

He said that the services sector captured largest space in the GDP while it reached 53 per cent of the GDP last year.

“The services sector dominated by foreign investment could be dangerous for the country as it can be easily withdrawn,” he said, adding outflow of profits and dividends are the negative side of this investment.

Analysts estimate that at the end of the current fiscal, outflow of foreign exchange in the form of dividends and profits could reach up to $1 billion.

The policy-makers have failed to attract FDI in manufacturing and production which could be long-lasting and export-oriented.

The FDI trend in Pakistan is different from India and China where FDI landed in various sectors, including manufacturing and production sectors, which helped these countries keep their growth rate much higher than all other countries.

Pakistan set an initial GDP target of 7.2 per cent for 2007-08, but most analysts see the growth rate much below the target. Some say six per cent growth would be a welcome situation.