Although Pakistan has stepped up efforts to attract billions of dollars in foreign investment since the current fiscal year began in July 2018, the investment dropped dramatically in January as concerns resurfaced over whether Islamabad was going to the International Monetary Fund (IMF).
Foreign direct investment (FDI) dropped to a six-month low of $132.2mn in January 2019 compared to a six-month high of $319.2mn in the previous month, showing a massive decrease of 59%, the State Bank of Pakistan (SBP) reported.
Cumulatively, in first seven months (July-January) of the current fiscal year 2018-19, the FDI dropped 18% to $1.45bn compared to $1.76bn in the same period of last year.
“Foreigners were shy of investing in Pakistan, waiting to see whether Islamabad was going to the IMF,” said Elixir Securities’ director research Hamad Aslam.
“Islamabad may let the currency depreciate ahead of going to the IMF for a bailout (of around $6bn). They want this to be settled down before making a meaningful investment in Pakistan,” he said. Making investment after the likely rupee depreciation in the near future would earn them better exchange rate and “they can wait for a couple of months to let the rupee-dollar parity settle,” he said.
“We anticipate the rupee to touch Rs150 to the US dollar by December 2019 from around Rs139 at present,” he said. “The government may let the rupee depreciate to the anticipated level in one or two rounds or gradually over the year.
We see the current rupee-dollar parity as fair enough at present.” Pakistan recorded a notable drop in FDI in three major sectors i.e. power, construction and financial business in the first seven months of FY19.
On the other hand, oil and gas exploration, electric machinery, car manufacturing and power services attracted higher FDI.
The communication sector, mainly telecommunication, continued to record divestment. Aslam pointed out that China had remained a major investor in Pakistan’s power and construction sectors under its multibillion-dollar China-Pakistan Economic Corridor (CPEC) project.
However, the Chinese investment has slowed down for different reasons including the fact that a couple of projects, mainly in the power sector, were nearing completion.
While a boost in oil and gas exploration activities in the country may be the outcome of new investment, most of this investment has come from foreign companies.
“For example, ExxonMobil of USA and Italy’s Eni in partnership with OGDC and PPL have recently started offshore drilling near the Karachi coastal area,” he pointed out.
FDI in the power sector dropped 63% to $233.8mn in the seven-month period compared to $625.2mn in the same period of last year.
Investment in the construction sector decreased 25% to $288.9mn compared to $386.2mn last year.
Financial businesses attracted $216.7mn, which was 29% lower than $303.3mn in the previous year.
FDI in oil and gas exploration increased to $145.1mn compared to $121.6mn.
Electric machinery attracted $126.4mn compared to $13.8mn; car manufacturing received $69mn compared to $35.5mn and power services attracted $44.8mn compared to $2.1mn in the corresponding period of last year.
Divestment in telecommunication rose to $146.2mn in Jul-Jan FY19 compared to $16mn in the same period of last year.
China remained the single largest investor with $825.5mn in the seven months ended January 2019 followed by the United Kingdom with $127.4mn investment.
South Korea invested $68.3mn, Japan $66mn, the UAE $58.5mn and the Netherlands $56.8mn.
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