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Following a surprising jump in September 2019, foreign direct investment flows is reverting to the mean. Except for the $385 million balloon inflow last month, FDI inflow since January 2019 averaged around $128 million. October’s FDI clocked-in at $108 million. But this was much expected.

Around the same time last month when first quarter numbers were released, certain economic observers were getting excited about FDI’s September high, and how it perhaps marks a turn around. This necessitated a reality check which was discussed in this space. (Don’t get high on FDI high, Oct 24,2019)

This month too, the situation is not very different. On the face of it, October 2019 was a wonderful performance in year-on-year comparison. If October 2018 saw a net outflow of $367 million, October 2019 saw an inflow of $108 million. That makes a huge difference in relative terms but in reality, the inflow is still peanuts.

October 2018 had witnessed a gross outflow of $538 million dollars from China as Chinese ploughed back some investments, which for the record did not reflect in October 2018 data released by the State Bank of Pakistan (SBP).

BR Research’s own data archives show that the revision started reflecting in 9-month aggregate number reported by the SBP in April 2019, whereas before that, all outflows in power sector and from China were minimal. The central bank does not have a habit of explaining or even notifying revisions in data releases – not even major revisions like these – which is why nearly all economic observers missed it.

Since the outflow in question equals about a third of net FDI inflow in the entire FY19, this requires a separate discussion. But quick insights from BR Research’s power sector sources reveal that in October 2018, there was an outflow of around $530 million from a Chinese power entity that repaid an “intercompany loan to its parent company”. For the uninitiated, as per standard definition followed by Pakistan, FDI inflow/outflow includes cash received for investment in equity, intercompany loan, and capital equipment brought in/out.

October 2019, on the other hand, didn’t see any such major outflow from Chinese investors; but it didn’t witness any solid inflow either. Central bank data show that gross outflow from China was $14 million where the gross inflow was also chip change of $33 million. And it is this outflow which is inflating 4MFY20 net FDI growth of 238 percent as reported by the SBP.

Total FDI inflows (minus China) show that FDI in October 2019 actually fell about 25 percent year-on-year to $89 million from $119 million in October 2018. And that is equally worth worrying about at a time when everyone in government circles is gloating about improvements in doing business ranks.