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Pakistan hit by instability, energy crisis; FDI declines
Hit by political instability and energy crisis, foreign direct investment continues its downtrend at a time when Pakistan needs big foreign inflows to boost its economy and bolster external balances.
The FDI declined 48.3 per cent to $756.4 million over 11 months ended on May 30 during the current FY-2012. It compares with $1,463 million in the like period of FY-2011, State Bank of Pakistan (SBP), the central bank reports. In May, the FDI shrank to $90.2 million, down from $171.1 million in May, 2011, SBP also says. “The net foreign investment fell 62.5 per cent to $678.9 million in July-May FY-12, down from $1,810 million in FY-11.
What has the future in store? Not much good news. The reason: national elections are in the air. Oppositions demand that rather than waiting for its five-year term to end in March 2013, the ruling alliance headed by Pakistan Peoples Party, step down and hold elections now.
The poor situation of FDI is unveiled in the just-released report, which says “foreign inflows remain precarious, putting more pressure on the fast-depleting forex reserves and destabilising the exchange rate.” While depreciating the rupee, the declining exchange rate also means that when one rupee fall against the dollar Pakistan’s foreign debt increase by Rs60 billion. The currency has depreciated by Rs9 against the dollar since July 01, 2011, which means the country’s foreign debt has grown by Rs540 billion. The currency closed at Rs94.60 in inter-bank market and 95.80/96 in the kerb to a dollar over the weekend.
Portfolio investment, too, is not doing well. It recorded an outflow of $35 million, over 11 months ended on May 30, FY-12, as against the inflow of $367.9 million in the like period of FY-11. The SBP analysis indicates, over the eleven-month period Pakistan received $186.6 million investment from US. The UK provided $157.6 million, while Swiss investment was $132.5 million. Italy provided $161.5 million and China $116.5 million.
What was the sector-wise investment? From among 36 sectors, oil and gas exploration, chemicals, construction, electronics and textiles groups recorded the highest inflow of the FDI. Oil and gas sector alone attracted an investment of $526 million, compared to $432 million in the like period of FY-2011. But the FDI in telecoms and the financial businesses received a setback as they saw a decline. Telecom sector saw a net outflow of $346 million, while it was a net inflow of $78 million last year.
Views expressed by the author are his own and do not reflect the newspaper’s policy
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