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Significant Decline In Foreign Investment To Pakistan
February 15, 2010
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State Bank of Pakistan

State Bank of Pakistan

Foreign direct investments in Pakistan declined by 54.6%, past seven months of the fiscal year with investments falling to only $1.18 billion, State Bank of Pakistan confirmed today.

According to State Bank Of Pakistan the FDI flow into the state during July to November period of this fiscal year fell by 54% but when combined with portfolio investment reported a decline was 25.6%.

State Bank in an email stated, “investments have fallen to $1.18 billion from $2.59 billion a year earlier. Global funds bought $290.7 million more Pakistani stocks than they sold in the seven months, compared with net sales of $355.8 million a year ago.”

In Geneva on 19 January 2009 , Global foreign direct investment (FDI) inflows were estimated to fall by 21% in 2008 to an estimated $1.4 trillion, and were estimated to further decline in 2009.

Political instability, terrorist attacks, power, gas and water shortage and weak law order control has led to falling trend in FDI. These are the major reasons due to which the foreign investors are not interested in investing their capital in Pakistan.

Pakistani firms are unable to sign agreement with foreign investors due to the prevailing abysmal law and order situation.

According to economists, “although the global economic meltdown was also a reason of slow growth in FDI, the domestic shocks were major contributors in the declining trend of FDI. November was the third consecutive month in which the country posted decline in foreign direct investment. We were expecting some increase in the FDI during the current fiscal year ahead of positive economic indicators. The ongoing war in the northern areas and suicide attacks in different cities had restricted the foreign buyers from new investment in Pakistan.”

The State Bank of Pakistan (SBP) on has said, “FDI had posted a decline of 52.2 percent during July-November period of current fiscal year. Although, some increase was registered in portfolio investment in the first five months of current fiscal year, FDI still remained on decline.”

FDI reduced to $774 million during July-November of current fiscal year in last fiscal year it was $1.62 billion, depicting a decrease of 846.7 million dollars. Portfolio investment have reached to $311.3 million in July-November of fiscal year 2010. In 2009 it was 162.9 million dollars. The government expects gross domestic product will grow 3.3 percent this fiscal year.

Current global economic recession, and falling profits have caused many companies to cut capital expenditures and reduce FDI. This economic crisis has affected every region with varying geographical impacts. This crisis originated in developed countries and their major effects on the developing world have been indirect up till now which has affected FDI flow.

The share of foreign direct investment, flowing into Pakistan, is negligible when compared to the opportunities and economic fundamentals of the country. The FDI inflow into the country is less than one per cent of its total, made globally. Since 1996, when received highest amount, FDI in Pakistan has been experiencing a declining trend.

According to UNCTAD, “all experienced sharp foreign direct investment declines, except for the Netherlands and China. The overall environment for international investment is slowly improving. As a consequence, it expects global FDI flows will rebound modestly in 2010. The economists say improving conditions will ultimately encourage companies to invest more in foreign countries this year, prompting a stronger recovery in 2011.”

To emerge as a promising nation Pakistan has to provide conductive environment for external economic flows.

Foreign direct investment (FDI) in Pakistan is a major external source to meet obligations of resource gap, human resource development and goal achievement. The FDI has played a vital role in the economic growth of Pakistan.

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