FOR two years now, foreign investment inflows into the country have been on a steep downward path, falling from a peak of $4.44bn in 2014 to less than $1bn in the last fiscal year. Coupled with similar declines in exports, this paints a worrying picture of the state of the external sector. The State Bank has repeatedly pointed out that tackling this trend is crucial to bringing stability to the reserves since future debt service obligations are high and the reserves may look good at the moment, but their shine will diminish once those outflows begin. Last year saw a precipitous decline in foreign investment which fell below the one-billion-dollar level for the first time in four years, led primarily by portfolio and public investment. For this reason, all eyes were on the July numbers, the first for the new fiscal year, for signs of a possible recovery. As it turns out, the new numbers, just released by the State Bank, bring mixed news.

Foreign investment has continued its downward slide in spite of a fresh beginning with the new budget, dropping by more than 14pc in comparison to July last year, even as portfolio and public investment recovered albeit in meagre quantities. Even though total foreign investment in the month jumped compared to last year, the bulk of the improvement came from portfolio investment, which is hot money and not here to stay. The declines in direct investment are the key, and the fact that investment from China has shown the steepest declines may explain the roll call of statements from the highest government offices calling for work on CPEC projects to be expedited and the path for the Chinese to be smoothed. More worryingly, the longer-term numbers show a steady eclipse of the older, more traditional, countries from where foreign investment came into Pakistan, and a growing presence of Chinese investors as the largest by quantum. There is an old piece of economic wisdom which says foreigners will not invest in a country if its own nationals are shying away from acquiring stakes there. The government should heed the advice being given by the State Bank and do more to improve the overall investment climate in the country, rather than focus so heavily on the Chinese alone, in order to reverse this trend in a more credible way.

Published in Dawn, August 19th, 2016