FDI inflows rise in February but fall by 40% over eight months

Despite the challenging economic and political conditions, foreign direct investment (FDI) increased by 10% compared to the same month last year in February.

However, the overall FDI inflows for the first eight months of the fiscal year fell by over 40%.

In this regard, the State Bank of Pakistan (SBP) released data indicating that FDI had been declining since the beginning of the financial year, primarily due to economic vulnerability and political uncertainties.

China led the list of FDI inflows with $22.7 million last month, and from July to February, the FDI inflows from China were $222.8 million, the highest inflow from any one country. Nevertheless, Chinese inflows were lower than last year’s $366 million. Japan and Switzerland were the two other significant sources of FDI, with $134 million and $123 million, respectively.

During the first eight months of the current fiscal year (8MFY23), total FDI inflows were $784.4 million, compared to $1.315 billion in the same period last year, representing a 40.4% decrease.

The Pakistani rupee has been struggling to stay within the current range of Rs280 against the US dollar due to rising demand and poor foreign exchange reserves, leading to rupee depreciation. On Monday, the Pakistani rupee depreciated by Rs2.32 per dollar, reaching Rs284.03 in the interbank market, up from Rs281.71 in the previous session held on March 17. Currency dealers anticipate further depreciation as negative reports about the Pakistani rupee spread abroad, resulting in a loss of value internationally.

Importers are purchasing dollars from illegal markets to sustain their businesses, but this is also strengthening illegal dollar trading. The exchange companies have insufficient capacity to provide the large supply of dollars required by importers. The open market offered a dollar at Rs286 on Monday, while exchange companies quoted the dollar price as Rs285.50 for the interbank market. Exchange companies also trade with banks, as they are required to deposit their surplus dollars in banks each day.

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