Pakistan’s foreign direct investment (FDI) has experienced a concerning downturn, prompting attention from the government’s financial authorities. According to the State Bank of Pakistan (SBP), FDI inflows recorded a disinvestment of $173.2 million in January 2024, marking a noticeable decline from the $211.1 million direct investment in December 2023. This represents the highest negative FDI since October 2018.
Comparing year-on-year figures reveals a decrease from $236.7 million in the same period last year. The cumulative FDI for the first seven months of FY24 has fallen to $689.5 million from $876.8 million in the previous year.
Various elements contribute to this decline, including the uncertain macroeconomic environment, high business costs, security concerns, regulatory obstacles, and the ongoing global pandemic. Pakistan’s ranking of 136 out of 190 countries in the ease of doing business index further highlights the challenges. Moreover, the country faces issues such as a high fiscal deficit, a low tax-to-GDP ratio, exchange rate volatility, and mounting debt burdens.
It goes without saying that FDI plays a pivotal role in the country’s economic growth by bringing in capital, technology, skills, and market access. It also contributes to job creation, productivity enhancement, and innovation. Therefore, the incoming government, likely to be a coalition of PML-N and PPP, must improve the investment climate to attract more FDI, particularly in sectors with high potential for value addition such as information technology, agriculture, manufacturing, and services.
Pakistan, despite challenges, holds considerable potential to attract FDI due to its strategic location, sizable population, abundant natural resources, and diverse culture. However, addressing barriers and creating a conducive and competitive environment for foreign investors is essential to capitalize on this potential.
