Foreign direct investment (FDI) inflows are important for economic development in all countries, especially developing ones. In many developing countries, FDI inflows have increased over the past two decades. However, in Pakistan FDI inflows declined during the previous six months very badly. It is due to, the devaluation of the Rupee, energy shortages, financial instability, bad economic governance, the balance of payment issues, and political instability that have adverse effects.
Foreign Direct Investment (FDI) into Pakistan has plunged by 47pc during the first quarter (July – September), according to data released by the State Bank of Pakistan. It said that the FDI fell to $253 million during the first quarter of the current fiscal year as compared with $479 million in the corresponding quarter of the last fiscal year. The inflows recorded a 31.7pc decline to $395 million during the quarter under review as compared with $579 million in the same quarter of the last year.
On the other hand, the outflow under the FDI significantly increased by 42.5pc to $142 million during July – September 2022/2023, as compared with $99.6 million in the same period of the last fiscal year. The total foreign private investment into the country fell by 36.3pc to $241.3 million during the quarter under review when compared with $379 million in the corresponding quarter of the last fiscal year. The portfolio investment in the capital market registered a massive decline in the outflow. The outflow of portfolio investment recorded $12.1 million during the first quarter of the current fiscal year as compared with the outflow of $100.5 million in the same quarter of the last year.
The foreign public investment under the head of debt securities recorded an outflow of $18.2 million during the first quarter of the fiscal year as compared with an inflow of $980 million in the same quarter of the last fiscal year. The total foreign investment including private and public recorded a decline of 83.6pc to $223 million during the quarter as compared with $1.36 billion in the same quarter of the last fiscal year.
Remittances sent home by overseas Pakistanis also slowed down to a four-month low at $2.44 billion in September. The State Bank of Pakistan reported that the receipts contracted 10.5pc in September compared to inflows of $2.72 billion in the previous month. The remittances were 12.3pc lower compared to the same month of the previous year when they stood at $2.78 billion.
Pakistan’s exports dropped by 3.83pc in September in comparison to August, while imports dropped by 13.21pc. According to the Pakistan Bureau of Statistics (PBS), exports in September amounted to $2.38 billion. Exports in September were 3.83pc lesser than in August, while 0.91pc lower than in September 2021. The exports from July to September went up by 1.84pc, which amounted to $7.12 billion. However, imports in September dropped by 13.21pc in comparison to August and amounted to $5.26 billion. The import dropped by 19.72pc in comparison to September 2021.
After assessing the situation, the global rating agency Fitch cut Pakistan’s sovereign credit rating by a notch to ‘CCC+’ from ‘B-’, citing a further deterioration in the country’s external liquidity and funding conditions and a drop in foreign exchange reserves. Recent widespread floods in Pakistan have further weakened the country’s economy, which is already in turmoil with a rising current account deficit, inflation above 20pc, and a sharp depreciation of the currency. The agency said the floods caused more than $30 billion in damage to the economy and they would undermine Pakistan’s efforts to rein in twin fiscal and current account deficits. On the policy front, Fitch said it assumed that Pakistan would continue to receive disbursements under its International Monetary Fund programme, but risks to it have risen. Earlier, Moody’s Investor Service also cut Pakistan’s sovereign credit rating by one notch to Caa1 from B3, also citing increased government liquidity and external vulnerability risks following the devastating floods.
Pakistan’s credit rating was recently downgraded by Moody’s rating agency which observed that the country’s ability to afford its own debt is “one of the weakest among the sovereigns” that the rating agency deals with. As it is, interest payments eat up half of the government revenue.
In September, Barclays Bank pointed out: “We estimate that Pakistan faces a funding gap of at least $6 billion in the fiscal year 2023 (FY23). Of the $15.5 billion in debt service obligations falling due in the fiscal year, $9.5 billion will be rolled over, since it was from official creditors, and a bond of $1.5 billion is earmarked in the latest budget. But refinancing plans for the remaining $4.5bn are not available”. By analyzing all the above-mentioned constraints all are the big obstacles to enhancing foreign investment in Pakistan
