KARACHI: Foreign direct investment (FDI) fell by 40 per cent in the first two months of current fiscal year increasing the list of problems faced by the newly elected government which is looking to reverse the widening trade gap and depleting foreign exchange reserves.

Total FDI fell to $288 million during July-August FY19 compared to $480.6m in the corresponding period last year, according to the data released by State Bank on Friday.

The largest fall in FDI came from China, which continues to occupy the position of top investor in the country. During the period under review, Chinese investments declined to $170.6m down 34pc from $260m in the last fiscal year.

Despite the decline in FDI and reports on re-negotiations between the two countries, both Pakistan and China have showed their willingness to continue with the China Pakistan Economic Corridor (CPEC) refuting contrary reports in the media. New government in Pakistan recently expressed its willingness to exploit the opportunities under CPEC for the improvement of economy.

Chinese investments, concentrated in the power sector, fell sharply during the current two months of FY19 to $43.3m from $189.8m last year. Chinese share in the total investment during the first two months of FY19 clocked in at 59pc.

Unlike last year when power sector was the top recipient of foreign investment, this year, the construction sector emerged as the most attractive sector for FDI during the first two months of FY19. The investment in construction sector almost doubled from the previous year as it increased to $105.6m up from $55.6m.

Amongst other sectors, financial sector received $33.3m, whereas the largest gain was recorded in the pharmaceuticals since FDI in the sector rose to $24.1m from just $2.1m in FY18.

However, foreign investments in oil and gas exploration sector dropped to $21.6m from $33.7m last year mainly attributable to the poor policy measures taken by the government towards oil and gas exploration.

Following China, UK was the leading contributor in FDI increasing the total tally to $37.4m compared to $32m last year. Investment from Switzerland and USA increased to $32.4m and $20.5m respectively during the period under review. The State Bank reported that the outflow from the portfolio investment increased to $129m against $105m last year.

The report also indicated that the total foreign private investment – excluding portfolio investment – registered a 57.7pc decline during the two months as it remained at just $158.7m compared to $374.9m in FY18.

The sharp decline in FDI comes at a time when the government is already struggling with the declining foreign exchange reserves which have fallen below $10 billion and the country needs additional $9bn to meet the expected current account deficit of about $18bn in FY19. The deficit for FY18 clocked in at $18bn.

Published in Dawn, September 15th, 2018