FDI – the worst isn’t over yet!

It is no exaggeration that political and economic instability scares away the investors, be it local or foreign. Pakistan’s current FDI landscape is a testament to this. Weak and debilitating foreign direct investment year after year has been due to economic instability, and the political instability of the last two years has only added fuel to the fire.

2024 started off with a net foreign divestment during January 2024. As per the latest data on the central bank’s website, the country incurred net FDI outflow of $173 million during Jan 2024 versus a net inflow of $211 million in Jan 2023. Not only is the monthly FDI for Jan 2024 net outflow after two years (Mar 2022), but also the highest net FDI outflow since Oct 2018. Along with a surge in outflows for Jan 2024, the inflows decreased by over 33 percent year-on-year during the month. FDI decline in Jan 2024 was led by the decline in the power sector and FDI from China that is the biggest investor in the country.

Overall, FDI in 7MFY24 has continued to trail down by 21 percent year-on-year. Major sectors such as power and financial business witnessed an overall decline in net FDI, while those in the oil and gas sector witnessed a rise during the 7-month period.

Furthermore, the argument that ‘all eggs in China’s basket’ and lack of diversification has been witnessed in all intents and purpose as a divestment of $259m by China largely from the power sector has sent FDI spiraling into abyss. And the future flows won’t be coming in easily. The political inertia since after the general elections has sent a strong message to the investors and the lenders already paddling the country’s choppy waters. Though agreement of a coalition government has been reached and some hope has returned to receiving the next tranche of the IMF deal, restoring and renewing investor confidence is going to be an uphill task for sure.