News Analysis |
Foreign direct investment (FDI) has witnessed a drop of 3 % during the first seven months of this fiscal year, according to the data released by the State Bank of Pakistan (SBP) on 15th February.
The report depicts that in the same period last year -spanning from July 2016 to January 2017, the FDI figure was $1,532 million. While, in a current fiscal year, Pakistan managed to receive a total of $1,488 million reflecting the decline of 3%. The breakup shows that the outflow showed a decline in its magnitude of $27.1 million, but the reduction in inflow was higher in magnitude as it plunged from $1,960.4 million in 2016-2017 to $1,889 million in 2017-2018 resulting in overall decline.
The Pakistani economy over the years has failed to revitalize itself on the backdrop of widespread corruption, higher cost of energy, weak trade facilitation and obsession with debt-financed growth.
The SBP suggested in its report released on January 19th that Pakistan’s economy is well positioned to meet the GDP growth target of 6.0 percent in Financial Year (FY) 2018. But, macroeconomic indicators are showing a more pessimistic picture thus far. The trade deficit in the fiscal year so far has ballooned to $21.5 billion. Though, the proponents of depreciation of the rupee expected the decline in the exchange rate to help improve the declining exports, the gap between the exports and imports widened to $21.55 billion in the current fiscal year.
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SBP also released the report on country wide FDI in Pakistan. The report revealed that China continues to be the biggest investor in Pakistan as it totaled $1,003.3 million constituting of 67.4 % of the total FDI received in the current fiscal year. The investment from China for the same period in last fiscal year was $ 474.6 million reflecting the jump of a staggering 111% from last year.
Moreover, the investment from Malaysia has increased to $118.2 million from $14.9 million in the last period. Similarly, the US increased its investment from $16 million to $73.25 million in FY17-18. At the same time, Turkey reduced its FDI as it witnessed a huge plunge from $131.4 million in 2016-17 to $10.8 million in 2017-18.
It must change its course and realize its potential given the huge investment in the infrastructure under CPEC. But soaring debt to GDP ratio and deteriorating external balance have been a major concern.
Despite the surge in Chinese investment, the overall share of investment from the other countries showed a decline. In the preceding year, the share of Chinese investment was 40.3%, which has drastically increased to 67.4 % indicating that investment from the bulk of other countries has declined.
Read more: State Bank of Pakistan performing despite obstructions
SBP expects that all three sectors of the economy, which includes agriculture, industry and services, will contribute positively in FY18. But with the twin deficit along with the increasing reliance on external debt, the government and central bank faces tough challenges ahead.
FDI has witnessed a drop of 3 % during the first seven months of this fiscal year, according to the data released by the SBP on 15th February.
The stakes are high, the new Silk Road is functional, and remittances posted an encouraging total as the improvement was evident in non-GCC corridors, especially the UK and US, which more than offset lower inflows from the GCC countries during Q1-FY18. But soaring debt to GDP ratio and deteriorating external balance have been a major concern.
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The Pakistani economy over the years has failed to revitalize itself on the backdrop of widespread corruption, higher cost of energy, weak trade facilitation and obsession with debt-financed growth. It must change its course and realize its potential given the huge investment in the infrastructure under CPEC.