KARACHI: Foreign direct investment (FDI) increased 12.4 per cent year-on-year in the first three quarters of 2016-17 mainly because of heavy inflows from China.
The State Bank of Pakistan (SBP) reported on Monday the country received $1.6 billion in July-March against $1.42bn a year ago.
With the beginning of the China-Pakistan Economic Corridor (CPEC), FDI was expected to increase sharply. However, the year-on-year increase of just $176.4 million in the nine-month period means policymakers have failed to attract foreign investors.
FDI from China rose to $595m from $590m a year ago. Chinese investment constitutes 37pc of FDI inflows.
Pakistan receives the lowest FDI in the region despite ample investment opportunities in power, real estate and services sectors. The country needs to borrow massively from commercial markets to make rising interest payments because of low FDI.
The trade deficit of $23bn, which is all-time high, is posing a threat to the external sector and making it harder for the country to continue fulfilling its foreign obligations.
Independent economists have suggested that the government should go back to the International Monetary Fund (IMF) as pressure on foreign exchange reserves is mounting.
The country’s foreign exchange reserves have been declining since October 2016.
The large trade deficit will further widen the current account deficit despite the government’s claim that the share of machinery in total imports was over 40pc. A large current account deficit means weak foreign accounts of the country.
The government believes the import of machinery will improve the country’s production capacity and ultimately increase exports. But exports have been declining for the last four years.
The SBP reported that portfolio investment registered an outflow of $361m against $350m recorded in the same period a year ago. The outflow curtailed the overall private investment in the country to $1,240m, up 15pc from a year ago.
Besides China, major FDI inflows were from France $161m, Netherlands $465m, Turkey $133m, United States $52m and United Kingdom $33m.
Significant outflows were recorded by Norway $51.5m and Bahrain $15.1m.
The FDI trend does not reflect any change in favour of the country as the volume of investment is still smaller than what it was six to seven years ago. The PML-N government, whose term will end next year, failed to bring any major change in FDI. It also failed to improve the country’s image as a business-friendly destination offering ease of doing business.
Published in Dawn, April 18th, 2017