FDI plunges 51.7pc to touch 3-year low in July-April

KARACHI: Foreign direct investment (FDI) in Pakistan tumbled 51.7 percent year-on-year to a three year low of $1.376 billion in the first 10 months of fiscal 2019 and the outlook is clouded by risks including economic slowdown and soaring debt.

The central bank data showed on Tuesday that the FDI flows plunged 55.25 percent in April 2019. FDI fell to $101.8 million in April from $227.5 million in the same month of last year.

Analysts said the prospects of the FDI were clouded by economic slowdown and sharper weakness in the exchange rate during the last few days.

Currency devaluation does not bode well for attracting Foreign direct investment, as investors like to have stability or they seek very high premium to cover the risk, the analysts added.

“The present scenario will affect both internal and external confidence and may affect all segments of activities,” an analyst said. The rupee has depreciated by 36.40 percent since January 2018.

A continual decline in the direct investments was also driven by reduction in Chinese inflows under the China Pakistan Economic Corridor (CPEC).

However, China continued to remain the top investor in Pakistan in FDI during July-April, the State Bank of Pakistan (SBP) data showed.

Pakistan attracted $429 million in foreign direct investment from China in July-April 2019, compared with $1.725 billion in the corresponding period last year.

The data showed that the power sector saw outflows. Foreign companies pulled $280.9 million direct investment from this sector in 10 months of this fiscal year, as against inflows of $1.032 billion last year.

Overseas companies, especially western investors are becoming reluctant to pour money into Pakistan on China’s growing influence in the country.

Foreign businesses invested $386.8 million in the construction sector.

In comparison, Foreign direct investmentin this sector amounted to $562.7 million last year.

Financial sector only fetched $256.5 million in FDI in July-April FY2018/19, down 33 percent from July-April FY2017/18. The telecommunication sector witnessed outflows, as the foreign companies ejected $162.1 million from this sector during the period under review.

The SBP’s data further showed that outflows from the equity market stood at $408.1 million in July-April, compared with $136.2 million in the corresponding period of last year.

Analyst said foreign investors have been waiting to see how the government addresses deteriorated balance of payments and fragile public finances after winning a $6 billion bailout package from the IMF.

IMF in it recent report said the country’s growth is projected to remain subdued at about 2.5 percent in fiscal 2019 in the absence of further adjustment policies, with continued external and fiscal imbalances weighing on confidence.

The central bank however expected that the IMF-supported programme, which was designed to restore macroeconomic stability and support sustainable economic growth, to unlock considerable additional external financing. This would likely improve foreign investor confidence in the economy.