KARACHI: Foreign investment rose to $4.377 billion in the previous fiscal year, the highest amount since 2008-09, the State Bank said on Tuesday.

In FY09, the country received a total foreign investment of $2.665bn.

However, the sudden rise in the total foreign investment was due to $2.1bn investment in the Eurobond. If this amount is deducted, the total foreign investment reduces to around $2.2bn, of which foreign direct investment was of $1.631bn. This is not a big change compared to FY2012-13’s figure of $1.456bn.

It shows the country still has an image problem in the international market; though it responded enthusiastically to Eurobond mainly because of very high return.

The Eurobond narratives

Experts and economists believe that despite high return the selling of Eurobonds boosted the sentiment for Pakistan as bilateral and multilateral donors extended loans at reasonable rates.

The borrowing increased the foreign exchange reserves of the SBP to more than $9bn from $2.5bn a year ago.

As fears about Pakistan’s ability to pay back loans disappeared, the IMF, World Bank and others encouraged to extend loans. Another major change was the strengthening of local currency against the US dollar as the rupee gained more than nine per cent in the second half (January-June) of the last fiscal year.

Higher reserves played a key role in the strengthening of economy, particularly they helped improve the balance of payments.

The IMF has recently reported positively for the economy while Moody’s also upgraded its outlook for Pakistan’s foreign currency government bonds to stable from negative.

Traders and industrialists believe that the recent military operation against terrorists in the north of Pakistan would help improve the country’s image tarnished by the terrorism across the country.

However, the government has not yet succeeded to improve its capacity to deal with crises like energy shortage, terrorism and deteriorating law and order situation.

Published in Dawn, July 16th, 2014