Troubles in attracting foreign direct investment continue for Pakistan as the country grapples with economic and political crises. FDI has always been a weak link in the country’s growth and development not only due to its size but also its nature and quality. FDI for FY24, the latest fiscal year, has been reported at $1.9 billion.
Though this is an increase of 17 percent over last year, it remains small and undiversified. FDI in general has been unimpressive and banal over the years except for a few spikes over the course of the country’s history.
Country-wise, China remains the largest investor, contributing $568 million, which accounts for 30 percent of the total FDI during the fiscal year. However, this was an 18 percent decrease compared to the previous year. FDI from Hong Kong: Investments increased by 43 percent year-on-year, amounting to $359 million, while that from the United Kingdom contributed $268 million, slightly lower than the previous year’s $270 million.
Sector-wise, the power sector was again the largest contributor with $800 million in net FDI. However, the sector saw a decline of 11 percent year-on-year. In contrast, the oil and gas exploration sector experienced a substantial growth in net FDI of 120 percent year-on-year, touching $304 million.
The growth in FY24 was much needed and came despite a jittery economic environment. Despite the growth, Pakistan’s FDI also remains one of the lowest in the region and among peers. It has lagged in comparison to peer economies. Pakistan’s investment-to-GDP ratio has remained the lowest among the peer countries, averaging 0.5 percent over the last decade against the 10-year average investment-to-GDP of 4.6 percent, 1.5 percent, and 0.8 percent of Vietnam, India, and Bangladesh, respectively.
Pakistan’s struggle to attract substantial and diversified foreign direct investment remains a significant challenge. The reliance on investments from China and the power sector underscores the lack of diversification. To boost FDI and spur economic growth, Pakistan needs to create a more stable and attractive investment climate by addressing political instability, improving infrastructure, and enacting investor-friendly policies. Without these changes, the country risks falling further behind its regional peers in attracting much-needed foreign capital.
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