The story of foreign direct investments is getting worse each month. Latest numbers for October 2015 show a steep drop of nearly 50 percent on year-on-year basis, which means the Jul-Oct figures, are now down by 24 percent over last year as against a meagre rise of 7.7 percent at the end of first quarter.
As is most often the case, its the inflows that matter; or the lack of it in this case. According to the central bank data, FDI inflows are down 53 percent in the four-month period after October 2015 saw an inflow of $182 million as against an inflow of $973 million in October 2014.
Whats even more interesting is the outflow of nearly $45 million from the countrys equity market in October 2015, which took total portfolio investment outflow to $144 million in Jul-Oct 2015 compared to an inflow of $167 million in the same period last year. Apparently, some US-based investor ploughed out $40.8 million from the market, according to central bank data.
In our previous piece on FDI (See BR Research column: FDI and the renaming of BoI, October 19, 2015) we produced historical charts showing how Chinese monthly inflows are now becoming more visible whereas that from the US are growing invisible.
Turns out that last month was no different: of the precious $182 million gross inflows Pakistan received last month; $92.5 million was from China (net: $82.5mn). Gross inflows from the US on the other hand were a laughable $9.5 million and since its gross outflow were $10.6 million; in effect there was a net FDI outflow of $1.1 million to the US.
In 4MFY16, FDI outflow to the US stood at a net $104.5 million, the biggest outflow to any country in the fiscal year to date, followed by a net outflow of $42.5 million to Saudi Arabia. We don know the sectors from which they have ploughed the money out, because the central bank doesn officially provide that data (lament!). But according to central bank data, petro chemical sector saw a net FDI outflow of $135 million, the biggest sectoral outflow in the fiscal year to date. Need one put two and two together?
Anyway, the problem is not that the FDI has fallen this month or that. But its that the inflows from conventional sources are slowing down, whereas the new stream - China - will take time to grow. In the meanwhile, profit repatriation and FDI outflows are straining the countrys capital account. Yet there seems to be no urgency in government circles to deal with the situation except for holding fancy conferences in Islamabad.
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