Ayesha Saba

Experts recommend that the government should adopt a more balanced and long-term approach and integrate FDI into a comprehensive economic strategy to boost exports, foster local innovation, and build a more resilient industrial base.

Talking to WealthPK, Deputy Executive Director at the Sustainable Development Policy Institute (SDPI) Sajid Amin said the current strategy to attract foreign direct investment was obviously not meeting the long-term economic goals. FDI is crucial but focusing on attracting foreign investors without simultaneously addressing trade deficits, industrial stagnation, and structural weaknesses leaves Pakistan vulnerable to the global market fluctuations, he explained. “Pakistan has yet to fully capitalize on sectors with high growth potential, such as technology, clean energy, and agribusiness. Instead of using FDI to develop these industries, much of the foreign investment is funneled into non-productive sectors like real estate, where economic benefits are limited to short-term gains,” he said. “The technology sector, for instance, has immense growth potential, but the focus remains on attracting investments in industries that don’t offer long-term benefits to the broader economy,” he added.

Sajid further argued that the government must integrate FDI into a broader industrial policy that fosters growth in local industries. “Instead of solely relying on foreign investors to boost reserves, the government should invest in local capabilities to create a competitive advantage in the global markets. This will not only generate export revenues but also help stabilize foreign reserves more sustainably.” Kamran Ahmed, Policy Advisor to the All Pakistan Business Forum, told WealthPK that Pakistan's current policies on foreign investment were not very attractive. He said availability, reliability, and cost of infrastructure facilities were essential ingredients of a business environment conducive to foreign investment. “Political instability is a real problem in Pakistan, and it is also true that without political stability, a country cannot achieve sustainable economic goals and increase employment opportunities.

Pakistan has a history of political instability, which has led to policy uncertainty and affect investment decisions. “Pakistan’s economy needs both short and long-term measures to proactively tackle the current economic impediments. Some of the major areas in which policy interventions are required include structural reforms and improving the investment climate – both foreign and local,” he added. According to the monthly economic outlook for Sept 2024, foreign direct investment (FDI) stood at $350 million, 55.5 percent up from the previous year. The power sector received FDI of $210 million, accounting for a 60 percent share, followed by the oil & gas exploration with $ 44.2 million (12.6% share). Moreover, the private sector Foreign Portfolio Investment (FPI) had a net inflow of $24 million, while the Public FPI recorded a net inflow of $78.2 million. Pakistan's total liquid foreign exchange reserves were recorded at $14.9 billion on Sep 20, 2024, with the State Bank of Pakistan's reserves at $9.5 billion.

Credit: INP-WealthPk