Pakistan’s FDI rebounds 16% in Feb but challenges persist

April 03, 2024

By Qudsia Bano

 In a promising turn of events for Pakistan's economic outlook, the foreign direct investment (FDI) surged by 16% in February, marking a notable rebound from the previous months' downturn. However, despite this positive uptick, experts warned of the lingering challenges that continue to cast a shadow over the country's investment prospects, reports WealthPK. The State Bank of Pakistan (SBP) reported a significant jump in FDI to $131.2 million in February -- a welcome shift from the previous month's net outflow of $173 million. This resurgence came as a ray of hope amidst a turbulent fiscal year marred by political and economic uncertainties. "While the increase in FDI for February is certainly encouraging, it's essential to acknowledge the persistent challenges that hinder sustainable growth," remarked Shahid Javed, an economist at SBP.

"Political instability, coupled with concerns about the investor confidence, particularly from key partners, continue to pose formidable obstacles to Pakistan's economic recovery,” he added. Indeed, the overall trend for the fiscal year remains concerning, with FDI witnessing a 17% decline to $821 million during the first eight months (July to February). Of particular concern is the staggering 80% decline in FDI inflows from China, historically one of Pakistan's the largest investors. Talking to WealthPK, Hamid Haroon, former economist at the World Bank, said, “The steep drop in Chinese investment signals a pressing need for the Pakistani government to address the underlying issues and rebuild trust with key stakeholders".

"Efforts to streamline the regulatory processes, address outstanding payment concerns, and foster a conducive business environment are imperative to rekindle the investor interest,” he said. Hamid, however, cautioned against complacency, highlighting the necessity of taking aggressive steps to solve the structural problems and provide a setting that will encourage steady inflows of investment. "Pakistan possesses immense potential for foreign investment, but realizing this potential requires concerted efforts to address governance issues, improve infrastructure, and promote policy stability," he said. Though there remain obstacles ahead, there are signs of hope in some areas. Significant investment in the energy industry, particularly in hydropower, has persisted, indicating continuous efforts to improve Pakistan's energy security and diversify its energy mix.

Credit: INP-WealthPk