Foreign direct investment rises by 76 percent in FY13

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KARACHI: The State Bank of Pakistan (SBP) reported on Monday that the inflow of foreign direct investment (FDI) into Pakistan rose 76.4 percent in fiscal year 2012-13 to $1.447 billion as compared to $820.6 million in 2011-12.


The flow of FDI gained upward momentum amounting to $1.318 billion during July-May FY13. The capital and financial accounts had remained under stress since FY11 - however the country received an inflow of around $2 billion in the fiscal year 2011-12.


The financial, oil and gas explorations, petroleum refining, food and power business took the lead in attracting FDI last year The countries of UAE, USA, Switzerland and Italy played a bigger role in the flow of foreign direct investment in 2012-13.


The portfolio investment at local equity market swelled to $119.5 million, depicting 299.2 percent in FY13 against the outflow of $60 million in previous year.Total private investment soared to $1.566 billion in FY13 from $760.6 million in FY12.


This means the country saw its foreign investment jump during last year (July-June 2012-13) showing improvement in the financial and capital accounts and cementing its status as a preferred destination for the global investors.


Economists said that the significant boost in the FDI numbers is a positive sign for the struggling economy of the country.


“The big transaction of multinational fast moving consumer goods (FMCG) company-Unilever in terms of buyback $500 million worth of its shares listed on the Karachi Stock Exchange helped increase FDI inflows into the country during the last fiscal year,” said Sayem Ali, an economist at Standard Chartered Bank.


“Another factor is the insurance cost on Pakistan’s five-year bond has increased almost 10 percent from 7.2 percent. Pakistan’s five-year credit default swaps (CDS) were trading around 1000 basis points. It means the price of insuring of the Pakistani bonds (debt) is going up, but also increasing the returns of the foreign investors on the bonds,” Ali said.


This has revived investor confidence about Pakistan’s economic prospects, Ali added.Another economist was of the view that the multinational companies are showing interest in big ticket investments as much growth in investment in Pakistan came from a sharp rise in reinvested earnings, suggesting that companies already in Pakistan were choosing to expand here.


As the clouds of political uncertainty have been removed, the foreign companies are willing to invest in “green filled projects” in the country. “However, security concerns, poor law and order situation and the energy crisis are still major challenges for attracting foreign investment into Pakistan,” he added.


The IMF in its recent statement has said that energy reforms should be complemented by significant structural reforms in the areas of trade, public sector enterprises, and the business climate to encourage higher investment.


Restructuring and privatization of public enterprises—including those in the energy sector—are intended to help restore fiscal stability as well as boost investor confidence in Pakistan’s future economic prospects and opportunities. This will lead to higher growth and job creation.

Courtesy:   The News

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