The 35 percent year-on-year decline in Foreign Direct Investment (FDI) in the first three quarters of the outgoing fiscal is a surprise only to those who haven’t been paying attention to investment patterns in the country. FDI has been declining since forever but a clear trend emerged over the last five years or so as the country began to rely overwhelmingly on China for the most serious kinds of investments at home. The pandemic has also played a very negative role, of course, since Pakistan’s efforts to reach out to other countries for FDI have yet to bear much fruit precisely because of it.
In a nutshell, though, this worrying decline and persistent downtrend is the result of keeping all, or most, of our eggs in one basket. Things began looking up with the onset of the China Pakistan Economic Corridor (CPEC) but it has also had the kind of political spillover effect that could mean trouble down the road for Pakistan. China is, after all, America’s new number-one problem and Washington’s Pivot to Asia policy, crafted in US President Obama’s first term, is meant to directly contain the Middle Kingdom as it prepares to attain superpower status sometime mid-century. That puts Pakistan in the eye of the storm for no fault of its own. But it is a fact of the new century and something that Islamabad will have to learn to live with and adjust to.
The government is also cautioned against patting itself on the back too much about the Roshan Digital accounts or offering domestic bonds at very lucrative rates. Bond is debt at the end of the day and it would be a big mistake on the part of policymakers to treat it as any sort of foreign investment. It was meant as a vehicle to raise debt so IFI’s like IMF could be bypassed, etc, but it seems that even with the high yield the response is not impressive enough to throw out the begging bowl once and for all. As a new finance team settles in it will no doubt make sorting out FDI a big priority, especially since a bunch of other indicators, like the current account and national reserves, are healthy enough for the time being. But it will most likely have to wait till the worst of the pandemic is over before making any breakthroughs worth writing home about. Still, it must be noted that even if FDI is raising some eyebrows, it is the only important indicator in the red right now, and most of the rest are doing well enough. *