Hold vigils, wipe the tears, order a tombstone, and lament the slow demise of foreign investments in Pakistan. In what was supposed to be a year of "stability", foreign direct investments nearly halved in the eleven months ending May 2015; from $1.5 billion in 11MFY14 to $803 million in 11MFY15.
According to central bank data, gross FDI inflows dropped 16.6 percent to $2.1 billion whereas gross FDI outflow increased by 26 percent $1.3 billion. May 2015 was the worst of the months; with a net FDI outflow of $7 million as against a net FDI inflow of $612 million in May 2014. Gross inflow in May 2015 fell to $103 million from $705 million last year, whereas gross outflow rose to $110 million from $92 million in May 2014.
In another news flash, our Sino friends invested $218 million in 11MFY15, which is quite a drop from an inflow of nearly $600 million last year. Investors from Saudi Arabia also did not exhibit a lot of confidence in the country. Net FDI outflow from Saudi Arabia rose to $117 million in 11MFY15, from an outflow of $36 million in the year-ago period. So much for friendship!
Also alarming is the overall capital account position when foreign direct investments are netted against profit repatriation. The latest profit repatriation numbers for 11MFY15 are not available, but if you net-off 11M foreign direct investments with 10M profit repatriation figures, you realise that we are $162 million in deficit this year under that broader head as against a surplus of $687 million in the year before. The actual situation is likely worse because profit repatriation would have only increased in May 2015; only that we don have the latest numbers.
The central bank doesn share country-wise profit-repatriation data on account of national interest, but had that been available, the country-wise FDI picture net off profit-repatriation to each country would have revealed some interesting picture.
Announcing the latest budget, Finance Minister Ishaq Dar talked much about raising the investment-to-GDP ratio 20 percent at the end of the medium term. He also highlighted how imports of machinery increased by an impressive 10.3 percent in FY15 indicating rising investment in the economy. But he did not care to dwell on why gross fixed capital formation had fallen in LSM and mining sectors.
He also touted that "Pakistan is offering such investment opportunities, which few countries in the region can match." But he didn offer detailed explanation of why the FDI was falling - aside from casting the blame on the dharna; nor did he explain the reasons behind the decline of overall foreign savings in the country.
If Pakistan is to get started on growth trajectory, much will depend on investments that can be financed through domestic savings or from foreign capital inflows. We all know how weak is the savings-to-GDP ratio, and how it might weaken further with the proposed taxation on retained earnings on corporations. In such a scenario, foreign savings are direly needed to finance the saving-investment gap. Ergo, with FDI performance like this, the whole PML-N cabinet needs to do a bit of soul searching. Mere slogans won cut anymore.