Even if the central bank didn report Mays FDI numbers, one could have easily said that eleven month numbers were down drastically; only that now we know that it fell 39 percent year-on-year.
The reasons, of course, are obvious. Security situation isn sanguine and from the looks of it, it isn getting any better either. Financial services and telecom businesses have become, by and large, saturated, which also means easing FDI inflows ahead. The Euro zone is reeling from economic troubles, and as a consequence, the world economy is still under threat.
And if these factors weren enough of a deterrent for foreign investors, FBR is contemplating a proposal to increase corporate tax rate by 5 percentage points to 40 percent next year.
The existing 35 percent is already one of the highest in the region, according to a presentation given by Ernst & Young at a pre-budget seminar held earlier this year.
"India, Bangladesh, Malaysia, Thailand have reduced rates between 25 and 30 percent.....the rate of corporate tax for public and private companies should be gradually reduced to bring at par with competing economies," the document said.
Yet, while an increase in tax rates will be an additional discouraging factor for foreign investors, certain quarters believe the hike is unlikely.
"We do not expect such an imprudent measure from the government which would not only prove harmful but would decrease investment and tax collections in long run by promoting tax evasive exercises from the corporates," brokers InvestCap said in a note released last week.
The key, therefore, still lies in the overall economic environment and the security situation.
The Board of Investment says it plans to attract new investment through road shows and setting up of special economic zones. But considering that most such gimmicks, including the presidents many tours to China, have failed to produce desired fruits, the odds are stacked against BoIs plans.
Still, if trends could be extrapolated, there is hope that FDI might just be picking up, at least in June.
Thats because, for some odd reason, FDIs in Pakistan tend to be higher in the last two quarters, based on which one can expect higher inflows next month. Plus, the fact that FDI inflows in May was at its highest since June 2009 is also a positive sign.
Whether this trend really means something is another question; but if its of any help, here is a bit of dampener: monthly trends aren necessarily meaningful in the case of FDI.
Comments
Comments are closed for this article.