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Pakistan attracts meagre $2.767bln FDI in 2017/18

By Our Correspondent
July 18, 2018

KARACHI: Net foreign direct investment (FDI) increased 0.8 percent to $2.767 billion in the last fiscal year, compared with $2.746 billion during 2016/17, the central bank data showed on Tuesday.

However, FDI was $291.5 million in June, 21.76 percent higher than the corresponding month of the previous year, the State Bank of Pakistan (SBP) data showed.

Analysts expected that the FDI would reach to around $3 billion in FY18.

FDI inflows remained concentrated in power, construction and energy sectors. The bulk of the inflows came from China, United Kingdom, Malaysia and Hong Kong.

China was the major source of FDI inflows in the power and construction sectors, as its investments remained focused on the China-Pakistan Economic Corridor (CPEC) project. Pakistan fetched $1.585 billion in FDI from Chinese firms in FY18, compared with 1.211 billion in the previous fiscal year.

Net inflows of FDI in the power sector rose to $885.3 million in July-June FY18 from $700 million in the same period of FY17.

Construction-related businesses attracted $707.3 million worth of foreign investments in 12 months of the last fiscal year as against $465.9 million recorded in FY17. Oil and exploration companies invested $194.8 million, compared with $146 million in FY17.

However, the financial sector continued to witness decline in FDI inflows during the period under review. FDIs in the banking sector fell to $276 million in FY18 from $296.1 million in FY17.

Portfolio investment at Pakistan Stock Exchange posted an outflow of $240.7 million in FY18 against $512.8 million during FY17.

The SBP’s data revealed that total foreign investment sharply increased 99.4 percent to $4.977 billion in FY18.

The central bank, in its third quarterly report stated that the weakening of the US dollar against a basket of major international currencies explained the divergence in the private equity flow trend to and from Pakistan. The portfolio realignment by foreign investors in the wake of weakening US dollar increased volatility in the global capital flows, as well as in Pakistan, specifically in July-January FY18, it added.

Foreign investors repatriated funds by liquidating emerging market assets, including in Pakistan.

The SBP’s report further said that import bill would likely stay high owing to a notable increase in international commodity prices, especially of oil. This would keep the trade deficit high in FY19 as well.

“Furthermore, the FDI inflows are expected to remain lower in FY19 than last year as a number of CPEC energy projects are in their advance stages of completion. Therefore, in overall terms, the high current account deficit, together with limited financial inflows, will continue to keep the balance of payments under pressure.”

The SBP further noted the political uncertainty due to the upcoming elections. “Moreover, the political uncertainty arising due to upcoming general election may have dampened the prospect of further inflows in the portfolio investment, as investors may hold their fund till new government unfolds its future policy direction,” it noted.