Foreign direct investment (FDI) in Pakistan shrank 29% to $141.2 million in May 2022

Political and economic uncertainty discouraging the foreign investment in Pakistan  

Foreign direct investment in Pakistan continues to fall due to the persisting political and economic uncertainty. The state Bank of Pakistan data revealed that foreign direct investment (FDI) in Pakistan shrank 29% to $141.2 million in May 2022 compared to $199.2 million in the same month of last year. In the first 11 months (July-May) of current fiscal year, the FDI inflows dropped 5% to $1.59 billion compared to $1.67 billion in the corresponding period of previous year.

Norway emerged as the largest investor with capital injection of $26.6 million in May, followed by the world’s largest and second largest economies; the US and China, which invested $17.6 million and $17.3 million respectively.

China remained the single largest foreign direct investor in Pakistan in the first 11 months of FY22. It pour $373 million in the under review period, followed by US, which injected $241 million in the 11 months. Hong Kong invested $137 million. Switzerland and UAE invested $132 million and $131 million, respectively.

China invested $719.5 million in the same 11 months of last fiscal year. It was followed by Hong Kong, UAE and US, who invested in range of $122-138 million each.

Power sector attracted the largest investment of $567 million in the 11 months of FY22, followed by financial sector and oil and gas exploration. They received $373 million and $188 million respectively.

Power, financial and exploration had remained the top three sectors having won largest foreign investment in the same 11-month of the last fiscal year.

Economic certainty and stability in the rupee-dollar parity are a must for attracting foreign investment to new projects. The rupee depreciation has dented foreign investors’ profit margins (in dollar),” as the currency has devalued by around 33% (or Rs51) in the past one year to Rs208.75 against the US dollar.

Foreign investors are monitoring the government’s moves to get revived the IMF loan programme, which is the last hope for turning around Pakistan’s economy in the short run.

Despite offering equal opportunities to both local and foreign investors, Pakistan has largely remained an untapped market for foreign investors, as the ongoing foreign investment in domestic projects has still remained in the initial phase.

It was must for the government to boost local investors’ confidence in the domestic economy. These should be the local investors who first initiate investment in import-substitution and export-oriented sectors. The strategy would help the government to attract foreign investors to start new projects in the country.

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