KARACHI: Foreign Direct Investment (FDI) increased 20 per cent year-on-year in the first half of 2021-22, reflecting an improvement in the investment environment.

In the first half of the current fiscal year, FDI amounted to $1.05 billion against the inflow of $879.7 million in the same period of 2020-21.

The inflow in December 2021 jumped 29pc year-on-year to $218.7m, data released by the State Bank of Pakistan (SBP) showed on Tuesday.

During the entire 2020-21, the country received just $1.86bn in FDI, which is a relatively small amount compared with remittances and export proceeds. Media reports suggest Prime Minister Imran Khan is expected to visit China next month.

The visit may bring more foreign funds as Chinese investment is due for infrastructure projects.

China was the biggest investor with inflows amounting to $306m

The inflow from China was $306m in the first half of 2021-22. Although China was the biggest provider of FDI among all countries, the inflow was still lower than expected. More than half of the Chinese investment came in December 2021. It amounted to $167.4m in December. During the first half of the previous fiscal year, FDI from China was $389.8m.

The outflow of FDI from the country during the first half of 2021-22 was $397m versus an inflow of $1.45bn.

Last year, the situation was different as the outflow was $686m against an inflow of $1.56bn. It shows a major chunk of inflows during the current fiscal year stayed within the country.

As for portfolio investment, the net outflow was higher with $307m this year against the net outflow of $244.4m in the same period a year ago.

Other significant contributors to FDI were the United States ($149m), Hong Kong ($110.9m), The Netherlands ($124.5m), Singapore ($66m) and United Arab Emirates ($66.4m).

Pakistan’s foreign exchange reserves have been declining in the current fiscal year mainly due to debt servicing. The government has decided to launch a seven-year Islamic bond to raise up to $1.5bn. The need for higher inflows has been increasing despite record inflows of remittances with $15.8bn in the first half of 2021-22, up 11.3pc from a year ago.

Exporters also found space due to Covid-19 to generate higher earnings. The country’s overall exports posted year-on-year growth of 24.91pc to reach $15.13bn in the first half of 2021-22.

Sources in financial circles believe that the International Monetary Fund board’s meeting, which is expected to take place on Jan 28, can produce positive results for foreign investors. If the IMF releases funds, it’ll be a signal of reduced risk for foreign investors.

Published in Dawn, January 19th, 2022