The economy of Pakistan is in doldrums, so much so that Imran Khan, its PM, took a tour around the world begging for money. Foreign Direct Investment (FDI) in the country touched a six month low of 132.2 million dollars in January 2019. This is a 59 percent drop from the 319.2 billion dollars received in the previous month, reported the State Bank of Pakistan. In the first seven months of the fiscal year 19 (the Pakistani fiscal year is from July to June), FDI dropped by 18 percent to 1.45 billion dollar compared to 1.76 billion dollar in the same period of the previous fiscal year. “Foreigners were shy of investing in Pakistan, waiting to see whether Islamabad was going to the IMF,” said Hamad Aslam, Director at Research Elixir Securities.
The Pakistani government may allow the depreciation of currency as the country approaches the International Monetary Fund for a bailout package because allowing the market value (natural value) of currency is one of the conditions for a loan from the global lender. “We anticipate the rupee to touch Rs 150 to the US dollar by December 2019 from around Rs 139 at present,” said Aslam.
Pakistan’s all-weather ally China has been the single largest investor in the first seven months of the ongoing fiscal year. The dragon invested 825 million dollars in Pakistan which is more than half of the total foreign investment received by the country. Most of the investment from China came in the various projects related to the China Pakistan Economic Corridor (CPEC). United Kingdom was a distant second with 127.4 million dollars investment in the first seven months followed by 68.3 million dollars by South Korea. Japan, UAE, and the Netherlands were other major investors with 66 million dollar, 58.5 million dollar and 56.8 million dollar respectively. Some countries like Malta divested 81.6 million dollars in first seven months of this fiscal year.
The FDI received by Pakistan last year in around 3 billion dollars. In an average year, India attracts 10 to 20 times more FDI than its western neighbor. In the fiscal year 2017-18, at least four Indian states (Maharashtra, Karnataka, Delhi and Tamil Nadu) received more FDI than India. Maharashtra received 11 billion dollars in FDI which is almost four times that of Pakistan. Karnataka received around 7.7 billion dollars which is two and a half times the amount invested by foreign entities in Pakistan. Delhi received 7 billion dollars in the fiscal year 2017-18, more than double of the amount received by Pakistan. Tamil Nadu attracted FDI almost equal (3.08 billion dollars) to that of Pakistan’s.
The net inflow of foreign investment to GDP ratio of Pakistan is also lower than India despite the fact that the economic size of the country is almost one tenth of India’s. The chart above shows that net inflows of FDI to GDP ratio for the last four decades, investments in Pakistan are lower than those in India for most of the time. Pakistan’s eastern neighbor, China, sustained almost double digit growth in the last three decades due to huge foreign investment. For most of the last three decades, China has been way ahead of India and Pakistan. However, India overtook China after the Modi government came to power. FDI in India increased considerably due to pro-market policies and structural reforms implemented by the Modi government.