FDI increases 63 percent YoY to $198.3mln in May

KARACHI: Pakistan’s foreign direct investment (FDI) increased 63 percent year-on-year to $198.3 million in May with major inflows going into the communications, trade and the power sectors, the central bank data showed on Friday.

The FDI increased 25 percent month-on-month in May. It stood at $121 million in May 2020.

The increase came with improvement of foreign investors’ confidence on Pakistan due to signs of a pickup in the country’s economic growth, resumption of the International Monetary Fund programme as well as improvement in the current account and budget deficits. Overall sentiments have improved on the back of recovery in global economies due to massive vaccine rollouts.

The State Bank of Pakistan’s data showed that the communications sector received $73.8 million in May followed by the trade sector ($54.5 million) and the power sector ($44.3 million).

Norway became a major investor in Pakistan as it invested $60.2 million in May, compared with $57.5 million in the same month of the last fiscal year.

Flows from the Dutch companies (Netherland) rose to $53.2 million from $15.3 million. The country drew in $1.752 billion of FDI in 11 months of this fiscal year, down 27.7 percent from a year ago. The FDI amounted to $2.422 billion in July-May FY2021.

The decline in July-May FDI, with inflows from key investment sources such as China, Hong Kong, United Kingdom, United States and the United Arab Emirates down in the period under review; reflect what analysts attribute to the challenging foreign investment environment in Pakistan. The SBP’s analysts also in the second quarterly report for FY2021 indicated the need for further progress on the structural reform front in Pakistan, saying Pakistani firms need to engage more actively in the global value chain, so as to land partnerships with major global companies.

Net foreign direct investment inflows from China declined to $728 million in July-May FY2021 from $843 million a year earlier.

FDI from Hong Kong stood at $138 million in July-May, compared with $168 million in the corresponding period of last year.

Despite all challenges, the country managed to attract $856 million FDI in the power sector, which was higher from $736 million received last year. An investment of $227 million was poured into the financial business in July-May FY2021, compared with $257 million a year ago.

FDI in the oil and gas exploration sector fell to $206 million from $275 million. In terms of fresh investments into Pakistan, China dominated the profile, with investments continuing to flow into CPEC-related projects in the power sector.

Here, it is important to note that it is still the Phase-I projects under CPEC that are deriving most of the FDI from China, according to the SBP’s second quarterly report on the state of economy for FY2021. In the second phase of CPEC, the investment focus is supposed to shift towards industrial development, agriculture mechanisation, tourism and social development, it said.

However, these sectors are yet to see any significant foreign investment flows, it added.