FDI shrinks by 59%, current account deficit down 60%

A news that could boost further speculation about Pakistan’s financial health, the foreign direct investment (FDI) shrank by 59 percent to $461 million in the first six months of the current fiscal year, with the country seeing a net outflow of $17 million in December.

However, things are continuously improving on the current account deficit (CAD) front, which shank by around 60 percent to $3.667 billion during the same period from $9.091 billion for corresponding months of FY22 [2021-22]. In the last fiscal year, the country’s CAD was $17.4 billion.

The latest data released by the State Bank of Pakistan (SBP) shows the financial sector fetched $176 million in FDI from global investors, which was lower when compared with $230 million in the corresponding months of the last fiscal year.

Similarly, the foreign investment in the gas and exploration sector dropped to $89.2 million in July-December from $138.9 million a year earlier with the amount falling from $345 million to $237 million in the power sector.

The shrinking FDI is certainly not a positive development for the country as the delay in the International Monetary Fund (IMF) programme, continuous political unrest, and deteriorating external finances have all reduced international investors’ confidence.

Due to rapidly dropping foreign exchange reserves, a weakening rupee, and worsening macroeconomic indicators, Pakistan’s economy is currently in a severe crisis.

Moreover, there are also security concerns for investors as the country battles a Taliban insurgency in its northwest.

The current account deficit story

When it comes to CAD, it widened month-on-month by almost 59 percent in December but shrank 78 percent when compared with the last year.

The SBP data reveals the CAD in December was $400 million compared to $252 million in November, an increase of 58.7 percent. However, it contracted by 78 percent from $1.857 billion in December 2021.

During this six month period, exports declined to $14.2 billion from $15.24 billion in the same period of last year while the imports were substantially reduced $29.5 against compared to $36.09 billion last year. However, the import bill is still double of exports leaving a wide gap for the government to fill the hole with remittances.

The data showed that the export of services slightly increased to $3.526 billion when compared with $3.432 billion in the same period last year and the import declined to $3.883 billion against an amount of $5.571 billion.

In the last fiscal year, Pakistan’s total imports (goods and services) were $84.121 billion while exports stood at $39.421 billion, leaving a trade deficit of $44.7 billion. The country failed to meet this gap and ended with a current account deficit of $17.4 billion.

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