KARACHI: Foreign Direct Investment (FDI) declined 38 per cent year-on-year in the first quarter of 2016-17, the State Bank of Pakistan (SBP) reported on Monday.

Pakistan has been facing a continuous decline in foreign investment for the last several years. It touched another low in the first quarter of the fiscal year, as it declined to just $249 million compared to $403m a year ago.

In September, FDI fell to just $136m, indicating that the investment situation has yet to improve. FDI was $162m in September 2015.

Pakistan has been accumulating foreign debt to improve its foreign exchange reserves, which have risen to $24 billion. But the International Monetary Fund (IMF) has warned that future debt repayment obligations can have serious implications for economic stability.

Currency experts said record-high reserves have kept the exchange rate stable for more than a year. The SBP governor recently said debt servicing will be around $5bn until 2020, which means Pakistan still has three years to improve its external sector in order to make higher repayments beginning with 2021.

The breakdown of FDI data shows that the only notable investments were from China ($91m) and the United States ($59m). Inflows from the United Arab Emirates (UAE) in July-September were $38m.

While foreign investment has been declining, the outflow of funds from Pakistan as repatriation of profits and dividends has started gaining momentum.

The outflow in July-August jumped 75pc to $205m, indicating that the rise can be in the range of $1.3bn-$1.5bn for the current fiscal year.

The SBP reported that the overall foreign private investment, which includes portfolio investment, also declined 11pc year-on-year to $277m in July-September.

Although China was the single largest investor in the first quarter of 2016-17, its investment was still less than 50pc of FDI received during the same period of the last fiscal year. FDI from China in July-September of 2015 amounted to $192m.

However, the investment situation seems to be reversing in the case of the United States. FDI from the world’s largest economy rose to $59m in July-September compared to a disinvestment of $62m a year ago.

Pakistan receives the lowest FDI in the region, which means policymakers must devise a new strategy to attract foreign investment amid a continuous fall in exports and remittances.

Published in Dawn October 18th, 2016