The State Bank of Pakistan (SBP) reported a 9.1% increase in net inflows of foreign direct investment (FDI) during the first four months of the current fiscal year (July – October). The net FDI inflows amounted to $733 million, up from $672 million in the same period of the previous fiscal year, signaling a moderate improvement in investor confidence in Pakistan’s economy.
The rise in foreign direct investment inflows is attributed to increased foreign investments in various sectors, with total inflows reaching $988 million in the first four months of the current fiscal year. This marks a 5.6% increase from the $936 million recorded during the corresponding period last year. However, this positive trend was slightly offset by an increase in foreign direct investment outflows, which rose by 3.3% to $255 million, compared to $264 million in the same period of the previous year.
Despite the increase in foreign direct investment, the overall net inflows of foreign private investment saw a significant decline. Total net inflows under foreign private investment fell by 14.6% to $587 million during the July – October period, down from $687 million in the same period last year. This decline is largely attributed to substantial outflows in portfolio investment, reflecting a more cautious stance by investors in Pakistan’s equity markets.
According to SBP statistics, the capital market experienced an outflow of $146 million during the first four months of the current fiscal year, a stark contrast to the inflow of $15.6 million in the same period of the previous fiscal year. This shift indicates a significant withdrawal of foreign investment from Pakistan’s stock market, likely driven by global economic uncertainties and domestic market volatility.
The total inflow of foreign investment into Pakistan experienced a sharp decline of 62.2% during the period under review. This decline is primarily due to a substantial decrease in investments in debt securities. The SBP reported that investment in debt securities fell dramatically by 137%, resulting in an outflow of $162 million during the first four months of the current fiscal year. In contrast, the same period last year saw an inflow of $436 million.
Analysts suggest that the decline in overall foreign investment inflows, particularly in debt securities, may be linked to rising global interest rates and a shift in investor preference towards safer assets amidst economic uncertainty. The significant outflows in portfolio investment also highlight investor caution regarding the stability of Pakistan’s financial markets.
The mixed trends in Pakistan’s foreign investment landscape underscore the need for robust economic policies and reforms to enhance investor confidence and attract more stable and sustainable foreign investments. The government’s efforts to stabilize the economy and improve the business environment will be crucial in reversing the decline in total foreign investment and ensuring a steady flow of capital into the country.
