THE large jump in the non-debt, job-creating flows of FDI into the country last fiscal is an encouraging sign in the wake of the challenges posed by Covid-19. The long-term foreign investment is reported by the State Bank to have spiked by 88pc to reach $2.6bn from the previous year. According to the bank’s data, the power sector, telecom industry, and oil and gas exploration sectors have attracted the largest portion of fresh foreign capital, mainly from China, Norway and Malta. Indeed, these are the second highest FDI flows into Pakistan in the last 11 years. Yet, it remains less than 1pc of the nation’s GDP and much below the real economic potential of a country of 210m. Another major problem is the concentration of FDI in domestic-oriented sectors, which in the long run has significant foreign exchange costs for the country in the shape of outward remittances of profits and dividends.

Given the long history of Pakistan’s balance-of-payments woes and its need to boost industrial output, especially for enhancing its exports, the country has always been looking to mobilise foreign resources, mostly in the shape of official assistance. Since official bilateral and multilateral assistance has been increasingly scarce for the last one decade, or comes with stringent political and policy strings attached, developing countries such as Pakistan are left with little choice but to muster long-term FDI as well as boost their exports and workers’ remittances to support their balance-of-payments position. Sadly, Pakistan has never been a choice destination for long-term investors. Nor have successive governments tried to make it a policy priority like other regional nations. We especially have negligibly low FDI in the export-oriented industries. There are a number of factors — poor regulatory environment, bureaucratic red tape, inconsistent business and economic policies, a weak macroeconomic framework, country perception, etc — that have led to mobilisation of low FDI volumes despite offering a liberal policy regime. While FDI flows account for less than 1pc of Pakistan’s GDP, our regional rivals, such Bangladesh, India and Vietnam, have successfully attracted foreign investment up to 5pc to 6pc of the size of their economy, and mostly in the export sector. With our exports and workers’ remittances feared to remain subdued during the present fiscal because of Covid-19’s effects on the global economy, the government needs to take urgent remedial policy actions to maintain the present FDI momentum and direct it towards the export-oriented manufacturing industry.

Published in Dawn, July 20th, 2020