FDI drops to $59 million in July

KARACHI: Pakistan’s foreign direct investment (FDI) fell 43 percent to $59 million in July from $103.8 million a year ago, the central bank data showed on Wednesday.

The FDI saw a 78 percent decline on a month-on-month basis. It amounted to $271 million in June.

State Bank of Pakistan’s data showed that the financial sector attracted $27.7 million in FDI from global investors in the first month of this fiscal year, which was lower when compared to $36 million in the corresponding month of last year.

Investment in the gas and exploration sector dropped to $2.7 million from $19 million.

Direct investment in the communications sector also fell to $10.6 billion from $14.9 billion.

However, the investment in the power sector rose to $30.6 million in July from $26.5 million a year earlier.

Investment flows from the UAE increased to $13 million from $3 million, and investment by Swiss firms rose to $12 million from $11 million. However, FDI from China fell to $5 million from $3 million.

The low private sector flows like the FDI and portfolio investment is a key concern for the government, but analysts expect that the revival of the International Monetary programme likely later this month, will improve the global investor confidence in Pakistan’s economy.

Global FDI inflows rebounded strongly in 2021 and surpassed pre-Covid levels, with around 75 percent of the increase recorded in advanced economies, according to the SBP’s half-yearly report for FY2022 on the state of Pakistan’s economy released on August 12.

The sizable fiscal and monetary stimulus in these economies – including lower borrowing costs, along with attractive investment opportunities in infrastructure and digital services – resulted in a sizable uptick in FDI flows to these economies, the report said.

On the other hand, FDI to emerging markets grew at a lower rate than to advanced economies, and there was also a wide dispersion within EMs. Sectoral analysis shows that FDI into IT services firms rose significantly, as investors tried to capture the growth in demand for digital services after the start of the pandemic, it added.

However, the FDI rose only 3 percent to $1.868 billion in the last fiscal year of FY2022.

FDI into the IT and telecom sectors supported an increase in direct investment. Pakistan’s ICT exports rose and start-ups in the sector also attracted foreign investment.

Most of the FDI into the IT and telecom sector came from the US, Netherlands, and Singapore. The US invested in tech-oriented companies, including those providing cloud services; the Netherlands invested considerably in one of the leading mobile network service providers in the country, and Singapore directed funding into a tech-enabled logistics platform.

Meanwhile, the telecom sector saw higher FDI inflows, largely due to the awarding of a 4G spectrum license to one of the largest telecom companies in the country. Furthermore, the financial services industry also recorded higher FDI inflows, with investments flowing into a few well-established conventional banks in technological and digital innovations as well as into microfinance institutions.

“The higher inflows into IT and telecom sectors helped offset a drop in FDI into the power sector, mainly due to a slowdown of investment from China,” the SBP’s report said.

Most of the power projects under CPEC are near completion or have already become operational, leading to a slowdown in FDI from the country into the power sector. Furthermore, there have been recent moves globally to phase out coal usage in power generation over environmental concerns, it noted.

Thus, investment from China in coal ventures abroad (including in Pakistan) is diminishing, the SBP said.