KARACHI: Foreign direct investment (FDI) in Pakistan has experienced a significant decline of 21 percent in the 11-month period ending in May. This decrease follows a drop in remittances and exports. However, there was a slight increase in FDI inflows in May compared to the previous month and the same period last year.
Data released by the State Bank on Tuesday revealed that FDI inflow in May amounted to $149.6 million, up from $121.6 million in April 2023 and $141.2 million in May 2022.
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Given the prolonged political and economic uncertainties, there is limited optimism in financial circles regarding an improvement in foreign investments. Pakistan has lost its appeal as an attractive investment destination over the past decade, and the current economic turmoil has further damaged its image.
Additionally, the severe shortage of foreign exchange reserves worsened when many companies failed to repatriate their profits and dividends out of the country. The government withheld approximately $1 billion in profits from foreign investments. This is noteworthy as only a few countries are currently investing in Pakistan, with China being the largest investor for many years.
During the July-May period, the country received $1.32 billion in FDI, representing a decline of around 21 percent compared to $1.66 billion in the previous year. The total FDI inflows for the entire fiscal year 2021-22 amounted to $1.55 billion.
China remained the top investor in Pakistan during the July-May period, with inflows of $374.8 million. However, this figure was lower than the previous year’s inflows of $425.7 million during the same period. Inflows from China have consistently surpassed those from other countries in recent years.
FDI inflows from Japan reached $168.4 million, compared to a net outflow of $10.9 million the previous year. Switzerland invested $140 million, up from $129.4 million, while the United Arab Emirates invested $129 million, compared to $112 million in the previous year. Hong Kong’s investment amounted to $94.5 million, down from $148 million last year.
The largest net outflow of FDI, amounting to $240 million, was observed in the 11-month period to Argentina.
The decline in FDI inflows was evident among most traditional investors. However, some experts find it encouraging that a few countries still show interest in investing in Pakistan despite its poor economic performance and ongoing political and economic uncertainty.
