ZAHEER ABBASI
ISLAMABAD: The lowest ever foreign direct investment and approximately $1 billion decline in the first four months of the current fiscal year reflects the economy’s fragility with serious risks for balance of payment position (BoP) in case oil prices in the international market increase, sources in Finance Ministry said on condition of anonymity.
Talking to Business Recorder on telephone, former Advisor to Prime Minister on Finance Dr Hafeez Pasha concurred that foreign direct investment has virtually collapsed and there was regular monthly outflow of portfolio investment. Pasha added that $450 million current account deficit in one month reflects a fragile situation of the economy. He further stated that there was hardly 11 per cent to 12 per cent growth in exports, which as compared to regional countries is nothing.
Pasha added Pakistan would face grave difficulties if exports continued to decline despite a decline in imports on the back of low oil prices in the international market. Pakistan’s economy got support from oil prices led low import bill and reliance on oil prices may be short-lived as increase in tensions in Middle East may raise prices, he added.
Former Economic Advisor to Finance Ministry Dr Ashfquae Hasan Khan told Business Recorder that not only FDI inflows were declining but also outflows were increasing rapidly as investors were not retaining their investment in Pakistan. He said existing foreign investors prefer to remit their entire profits instead of retaining it in Pakistan and this does not augur well for the country’s economy.
As far as exports are concerned, he stated the government does not seem serious to reverse the declining trend. “There is no alarm any where in the government and the country’s exports have been declining since January 2014,” said Khan.
He regretted that industrial activity has decelerated in spite of the lowest interest rate, which has become unattractive for investors and they are not borrowing. The government has created a relative disadvantage for exporters by blocking their refunds leading to capital shortage for them.
Sources in Finance Ministry stated that exports touched over $ 25 billion in 2013-14 but shrank to $23.8 billion during the last fiscal year and an additional decline of $ 1 billion in the ongoing fiscal year is projected while foreign buyers once lost are very difficult to woo.
As per component of balance of payments (as percent of GDP) data released by the Economic Advisor’s Wing in Economic Survey 2014-15 and Pakistan Bureau of Statistics the country faced a trade deficit of 10.68 per cent of GDP last fiscal year.
This was surpassed in 2007-08 at 12.3 per cent at a time when there was political turmoil at home and external economic factors were impacting negatively on the domestic economy including sky rocketing international oil prices and a steep rise in commodity and food prices, our major exports.
In fiscal year 2008-09, the country’s trade deficit was 10.2 per cent of the GDP which declined to 8.7 per cent in the subsequent year while registering 7.3 percent of GDP in 2010-11. The present government inherited a trade deficit of 9.5 per cent of GDP and during its two and a half year tenure it deteriorated to 10.68 percent in spite of the massive decline in the international oil price oil, our major import item. The reason, sources in the Ministry revealed ranged from a decline in exports sourced to an over appreciated rupee, continuing electricity crisis, failure to reform the energy and tax sector leading to high utility rates translating into high input costs and taxing the already taxed thereby creating distortions
Foreign direct investment, if China Pakistan Economic Corridor is excluded, is negligible and sources maintained that inflows from China under CPEC are mostly loans and technically can not be considered foreign direct investment.
The State Bank of Pakistan (SBP) in its reports for fiscal year 2014-15 stated “low foreign direct investment continues to remain a major concern, as inflows declined further in first quarter of the current fiscal year.
Pakistan received only US$ 153.5 million FDI during first quarter of current fiscal year as compared to US$ 239.5 million in the same period last year. This decline was broad-based: except for metals, automobiles, power and a few services industries, nearly all the remaining sectors of the economy attracted less FDI so far this year.
