FDI drops 17.1pc to $820.6 million in July-Feb

KARACHI: Pakistan’s foreign direct investment (FDI) fell by 17.1 percent year-on-year to $820.6 million in the first eight months of the current fiscal year, data from the State Bank of Pakistan showed on Wednesday.

In February, the country attracted $131 million in foreign direct investment, a 16 percent increase from the same month last year. According to data from the SBP, FDI in the power sector fell by 59 percent to $249 million between July and February of FY24.

Analysts blame China's aggressive withdrawal of investment from power projects for the reduction in FDI in the energy sector. During July-February of FY24, total direct investments from China decreased by 83 percent to $80.4 million.

However, FDI to Pakistan from Hong Kong businesses increased by 56 percent to $235 million. In the first eight months of the current fiscal year, foreign direct investment in the financial sector fell to $125 million, a 32 percent decrease from a year ago.

Direct investment in the petroleum refining sector was $59 million, down from $60 million a year earlier. FDI in the oil and gas exploration sector, however, rose to $151 million, a 94 percent increase.

Global investment was impacted by rising interest rates and economic uncertainty, according to a UN Conference on Trade and Development study. FDI flows in 2023 (estimated at $1.37 trillion) slightly exceeded 2022 levels, which surprised observers as early-year recession worries subsided and financial markets did well, the report said.

Due to political and economic instability, FDI is trending downward in Pakistan. However, experts anticipate that foreign investors will make investments in Pakistan as a result of the new government's formation, the establishment of the Special Investment Facilitation Council, and the potential privatisation of state-owned businesses, particularly Pakistan International Airlines.

In a positive development, the International Monetary Fund and Pakistan have reached a staff-level agreement on the second and final review under the country’s stand-by arrangement, which is likely to lead to the release of the final $1.1 billion tranche subject to the approval of the IMF’s executive board in late April. This will take the total disbursement to $3 billion.

The global lender said Pakistan also expressed interest in a successor medium-term Fund-supported programme to permanently resolve the country's fiscal and external sustainability weaknesses, strengthening its economic recovery, and laying the foundations for strong, sustainable, and inclusive growth. The discussion for the new programme is expected to start in the coming months.