FDI slumps 8.6pc in ten months

KARACHI - Net Foreign Investment in Pakistan dropped 8.6 per cent to $1.534 billion in the first ten months (July-April) of current fiscal year, 2010-11 amid reduction in the inflows of foreign direct investment into the country and outflow of portfolio investment from the local bourses, the central bank reported on Monday. The inflow of foreign investment stood at $1.678 billion during the same period of last financial year. In April 2011, foreign investment recorded at $177.5 million compared with $355.6 million during April 2010. According to the State Bank statistics, Pakistan received a total of $1.232 billion worth Foreign Direct Investment (FDI) during July-April FY11 from $1.724 billion earlier, registering a YoY decline of 28.6 per cent over the equivalent period of previous year. Pakistan posted a net outflow of $355.7 million in portfolio investments during July-April FY11 against $571.0 million in the corresponding period of past fiscal year. The total foreign private investment inflow with privatisation and without privatisation proceeds declined to $1.587 billion from $2.295 billion, depicting 30.8 per cent decrease over the same period of FY10. The slowdown in the inflow of FDI is considered to be a major cause of deceleration in overall foreign investment growth. Therefore, the SBP in its annual report for 2009-10 warned that the inflow of foreign direct investment as percentage of GDP has remained low in Pakistan, compared with some of the emerging economies in the Asian region. FDI stocks decreased to 11 per cent of GDP in 2009 from 35 per cent of GDP in the previous year. This decline is caused by political instability, bureaucratic hurdles, weak infrastructural policies and deteriorated law and order situation. According to a report, the government has so far failed or has been slowed in increasing the level of FDI inflows into the country due to not fulfilling the fundamental requirements vital for the enhancement of FDI. The report stated that political stability is instrumental in building the confidence of foreign investors as it ensures consistency in the economic policies. Unfortunately, political instability in Pakistan has not only been associated with administrative changes but also with the changes in economic policies, which has deterred the flow of FDI in Pakistan. The report found economic strength is the basic prerequisite as macroeconomic stability reflects how strong an economy is and how it can adjust to external or internal economic shocks. Unfortunately, low GDP growth, high inflation, falling industrial production and exchange rate volatility has characterised Pakistans economy in recent years. Economic policies needs to be consistent and in line with global practices. However complex legal formalities and amendments or altering of rules and regulations always creates an environment of uncertainty.