FDI (Foreign Direct Investment) provides a strong impetus to economic development in a country such as Pakistan which is heavily dependent on foreign inflows. Foreign investment has faced a constant decline ever since it peaked in FY07 and squeezed to less than a fourth in the past four years. The trend continued in the first month of this fiscal year. The chief reason for foreign investment to have shrunk to two fifth is the steep fall in portfolio investment. The hot money in equity market averaged $476 billion in last two years after remaining in red in FY09 when global investor sentiment were at the bottom owing to 2008 financial crisis. Portfolio investment peaked at over $1.8 billion in FY07. Now gloom is in the air again - talks of double dip recession are back in town - surely the upward trajectory forced by stimulus packages in developed world and early recovery in emerging part is showing ductility. US debt ceiling debate and rescue packages in eurozone owing to pilling up of debt is eroding investors confidence in capital markets. The lack of price discovery in local bourses is not helping the foreign money to pour in KSE which once happened to be a lucrative avenue due to its ease in entry and exit. Portfolio investment had on outflow of $28 billion in July versus an inflow of $42 billion in the similar period last year. It is further down by $7 million in first half of August. The writing is on the wall; the falling trend of foreign equity investment may continue. Foreign investors find it tough to find avenues, thanks to political uncertainty, lack of continuity of economic policies, fiscal mess and energy shortages. The most attractive investment avenue could be exploration and production area within the energy sector, but poor law and order and disparity in local and international gas prices kill incentives to explore the largely untapped area in Balochistan and KP. FDI fell by 27 percent from $2150.8 million in FY10 to $1573.9 million in FY11. There was a decline of 17.2 percent in its value, with the investment falling from $109.8 million in July 2011 to $90.9 million in July 2012. This does not only hamper growth and employment generation, but also has a battering on the balance of payment. In order to keep reserves at around half year of imports with IMF repayment coming up by the end of this year and dubious growth in remittances, policymakers have to think out of the box to attract foreign investment in energy and consumer segments.
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