The foreign direct investment (FDI) to Pakistan clocked in at $1.14 billion in the seven months of the financial year 2020-21 (July 2020 to January 2021), according to the State Bank of Pakistan (SBP).
The data released by the central bank showed that FDI inflows during the seven months of the current financial year are 27.4 percent (or $431 million) less than the value of FDI received in the same period of the last financial year.
The decline in FDI values shows the difference that can be traced back to last year’s one-time FDI brought in by the telecom sector for GSM license renewal fees. Furthermore, the COVID-19 pandemic worldwide put the investors in the cautious mode for a considerable period.
Analysts believe that the FDI of this year comprises mainly of investment from China for CPEC-related projects, especially considering that China’s share in Pakistan’s net FDI clocked in at 35 percent with $402 million for the said period.
China’s FDI was also for projects beyond CPEC and encompassed industries such as financial businesses, oil and gas exploration, and the communications sector.
Inflows from the Netherlands and Hong Kong stood at $122 million and $105 million, from July to January, respectively.
The power sector remained the major recipient of the inflows as FDI in the sector rose to $746 million in July-January from $450 million a year ago. Investment from financial businesses and oil and gas exploration and production stood at $229 million and $149 million, respectively.
Due to the economic slowdown, foreign companies also faced adverse liquidity crunch. The companies refrained from reinvesting funds, which is another important source of FDI in Pakistan. Experts expect this to increase as additional funds would be poured into Pakistan for industrial cooperation during the second phase of CPEC, which is currently progressing at a slow pace.
FDI in Pakistan usually remains concentrated in a few non-export sectors, such as power, construction, financial business, oil and gas exploration, electric machinery, and telecommunications. This time around, the investment in Naya Pakistan Certificate is likely to come through Roshan Digital Accounts (RDAs) in near future from overseas Pakistanis.
On the other side, the foreign portfolio investment recorded an outflow of $390.4 million from July to January.
During the period under review, total foreign investment in Pakistan, comprising foreign direct investment, portfolio investment, and foreign public investment, declined by 78 percent (or $2.68 billion). The net investment inflows stood at $755 million from July to January.