FDI falls for third consecutive month in May

Updated June 20, 2020

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The data released by the State Bank of Pakistan (SBP) on Friday showed that the FDI inflows have fallen since March — the month when Covid-19 was detected in the country. — Reuters/File
The data released by the State Bank of Pakistan (SBP) on Friday showed that the FDI inflows have fallen since March — the month when Covid-19 was detected in the country. — Reuters/File

KARACHI: Foreign direct investment (FDI) into the country fell for the third consecutive month in May to $120 million, from $133m in April and $278m in March, mainly due to investors’ aversion for emerging markets in the wake of Covid-19 pandemic.

The data released by the State Bank of Pakistan (SBP) on Friday showed that the FDI inflows have fallen since March — the month when Covid-19 was detected in the country.

However, the cumulative inflows in the 11 months of current fiscal year still showed an increase of over 90.6 per cent compared to the last fiscal year. The country received $2.401 billion during July-May FY20 compared to $1.260bn in the same period of last fiscal. The declining trend of foreign investment in the last three months clearly indicates that the inflows would fall further in the coming months.

Despite visible contraction in the current account deficit during the last couple of years, the country’s foreign exchange reserves are still under pressure. Bankers dealing with remittances and export proceeds said the situation is alarming as exports have fallen by 55pc in the first 10 months of the FY20.

They also warned that remittances will remain depressed in the coming fiscal year. The reason for this, they said was the falling crude oil prices which will lead to a decline in the income of oil-rich Arab countries. The falling oil prices may cause large layoffs for foreign workers in the Gulf region including Pakistanis working in those countries.

Aamir Aziz, an exporter of high quality ready-made garments to Europe, said that due to demand constraints in the international markets, there is no chance for exporters to sell their products.

“Even the normal growth of 5-10pc would be difficult in the next fiscal FY21,” said Aamir, who has put pending orders on hold. He said China is also facing difficulties in exporting goods around the world as the pandemic has forced most of the countries into a recession.

The SBP details further showed that the highest FDI inflows came from China, which rose $855.3m during the 11 months of this fiscal year compared to just $107.7m in the same period of last fiscal year. The resumption of FDI from China helped push inflows by 90pc during the current fiscal year.

Meanwhile, inflows from Norway were $346m compared to $110.7m in the same period last fiscal year. Other important inflows were from Hong Kong at $168m, Netherland $124m, UK $111m, USA $89.5m and Malta $203m.

On the flipside, the disinvestment by UAE was $36m compared to net investment of $92m in the same period of last fiscal.

Published in Dawn, June 20th, 2020