Decoding foreign direct investment has been a challenge for the country not only recently, but over the last decade. the investment flows have just not flowed in enough to appease the current account deficit. The numbers have just dwindled and remained dreary, showcasing a lack of investor interest in the absence of a conducive environment.

The recent numbers by the central bank show some improvement. The 5MFY24 FDI net flows are seen increasing by 8 percent year-on-year, clocking in at $656.1 million. The rise is supported by a noticeable jump in net FDI for November 2023. As per the data released by the State Bank of Pakistan, the net FDI in November 2023 was up by 12 percent year-on-year to $131 million. This rise in FDI for November was led by a 37 percent decline in outflows as inflows during the month were down by 10 percent year-on-year. On a month-on-month basis, the net FDI in November 2023 was up by 7 percent.

Country-wise, net FDI continued to be led by China. The country’s share in Pakistan’s total FDI in 5MFY24 was over 35 percent. However, FDI from China during the five-month period was seen declining by 7 percent versus the 5 months of FY22. China continued to invest the most in the power sector – a sector that attracted 51 percent of the total FDI in 5MFY24. After the power sector, second and third sector that attracted the most FDI were the oil and gas sector, and the financial sector, respectively.

Falling remittances and declining FDI have been posing serious risk to the country’s ability to meet its external obligations. SIFC is the new tool to bring some improvement in the investment climate. But the real change in reviving the investment climate in the country rests with political stability and economic recovery.