KARACHI, Sept 20: Foreign Direct Investment (FDI) dropped to a record level in the first two months of the current fiscal year, but higher portfolio inflows supported the overall foreign private investment which increased by 108 per cent.
The State Bank reported on Thursday that FDI remained limited to jut $33 million in the first two months as against $99.2 million in the same period last year.
The FDI fell by 69 per cent during these two months in the wake of fragile economic situation and complex internal political scenario.
Foreign investors were reluctant to invest in Pakistan during the last four years as depicted the data of falling investment during this period. Even attractive sectors, like telecommunications and power, failed to lure global investors.
The SBP report shows that both inflow and outflow of FDI was lower during these two months compared to the previous year.
According to details, inflow of FDI during July-August was $173.7 million while it was $297.6 million during this period last year.
The inflow was short of $124 million, a decline by 41.7 per cent.
Similarly, outflow was $140 million compared to $198 million during the two months of previous year, a decline of 29 per cent.
The low volume of inflows and outflows showed slowdown in trading activity that would impact overall economic growth.
However, temporary portfolio investors found their way to yield some profit from the capital market as they increased investment during these two months.
The portfolio investment rose to $74.7 million compared to outflow of $47.6 million during the same period last year.
Higher portfolio investment does not provide long-term support to economy compared to foreign direct investment. The falling FDI caused a serious dent to the current account and foreign exchange reserves of the country last year.
Higher FDI has been supporting external account of the country enabling it to maintain a current account surplus.
In 2008, the FDI was 5.4 billion which kept country’s external account in surplus.
Analysts were worried over the remaining tiny FDI which was not diversified. Instead it has been leaving lucrative areas, like telecommunications and financial business.
The only attraction for the FDI is oil and gas exploration while power sector offers huge potential for exploiting the rising demand of electricity.