KARACHI: Foreign direct investment (FDI) fell sharply in the first month of this fiscal year, indicating that the government has failed to improve the country’s image and to convince the global investors despite bulk of unused liquidity in the international market.

The State Bank reported on Monday that the FDI fell to just $24 million in July from $119m in the same month last year.

The 80 per cent decline in the FDI could further shatter the confidence of foreigners willing to invest here, particularly while the neighbouring India looks more attractive with $28 billion FDI in 2013.

The government has already completed 14 months in power, apparently struggling hard to invite foreign investors. But the result seems extremely poor so far.

The current month is more troubled for the country as two large public rallies are in Islamabad, protesting and demanding wrap-up of the entire government and the parliament for fresh general elections. A bleak picture is visible from investors’ point of view.

“Not only foreign investors but the foreign importers are also reluctant to place fresh orders for goods and services,” said Aamir Aziz, a manufacturer and exporter of textile goods.

The country may have to face a serious dent in exports. And it could get even worse if the uncertainty prevails for another two to four weeks.

The impact of uncertainty already started reflecting in the exchange rate as the dollar crossed Rs100 without any shortage. Panic is visible in the inter-bank market while the importers feel that the greenback may rise further if uncertainty persists.

“Dollar supply into Pakistan has fallen, and exporters are also in the race to cash the situation as they stopped to bring export proceeds,” said Malik Bostan, chairman of the Exchange Companies Association of Pakistan.

He said pressure is mounting in the inter-bank market due to importers’ rush and exporters’ delay to furnish export proceeds, whereas the open market is better.

Currency dealers and experts said the foreign investment dropped in July because the sit-in in Islamabad was announced the same month.

However, the State Bank reported that the portfolio investment witnessed a sharp increase in July, jumping to $69m compared to $15m in the same month last year.

But the equity market is currently depressed as foreign investors have started leaving Pakistan.

Published in Dawn, August 19th, 2014