FDI dips, portfolio investment increases

By Shahid Iqbal

The latest SBP figures paint a dismal picture for investment over the first two months of the current fiscal year.— Photo from APP/File

KARACHI: Foreign direct investment (FDI) fell sharply during the first two months of the current year while portfolio investment witnessed an encouraging recovery.

The State Bank of Pakistan on Tuesday reported that foreign private investment fell by 36 per cent to $412 million in the first two months of the current fiscal year. During the same period last year, foreign investment was $648 million.

However, Foreign Direct Investment (FDI), which had been intact last year despite serious disturbances in the North of Pakistan, fell sharply during the two months.

According to State Bank’s data, FDI fell to $351 million compared to $842 million in the first two months of last year, a fall of 57 per cent.

The FDI had been a source of foreign exchange for the country which has been facing an acute balance of payments problem.

The country last year received $3.719 billion as FDI which supported its extremely vulnerable foreign exchange reserves position, but it was not enough to meet the much higher current account deficit. Despite this inflow of FDI, the country had to approach the IMF for emergency loan of $7.6 billion in November last year which further increased to $11.3 billion this year.

Analysts said war-like situation in North of Pakistan and suicide bombings which sent extremely negative signals to foreign investors.

The country has been largely depending on FDIs and remittances being sent by overseas Pakistanis to meet the shortfall in external account.

On the other hand, portfolio investment found opportunities in Pakistan and suddenly increased its participation.

During the last financial year, portfolio investment witnessed net outflow of $510 million.

In the first two months, the current fiscal portfolio investment improved by 134 per cent which was an encouraging new trend for local bourses.

During this period, net $61 million foreign investment landed in the local stock market. This was against the net outflow of $176 million during the first two months of last year.

The State Bank’s website shows that till Sept 14, total portfolio investment reached $196 million, indicating a changed environment for the equity market.

The rising inflows in the equity market may help government sellout some important public sector entities which are in the pipeline for more than a couple of years.

Analysts said that time is not ripe to sell out some valuable shares in the market. They said portfolio inflows should stay at least for a year to prove that the market has developed sustainable strength to absorb shocks. They said time is needed to off-load valuable shares in the outer or local market. Link...