Pakistan's FDI falls 27% in seven months of FY2021 as FATF's Grey-listing scares investors

On account of the Paris-based intergovernmental organisation - the Financial Action Task Force (FATF) - naming Pakistan in the 'grey list' for terrorism funding and related money laundering, the country's Foreign Direct Investment (FDI) has recorded a fall by 27 percent during the first seven months of FY 2020-2021, the State Bank of Pakistan reported on Monday.

A noticeable decline of 12% has been observed in FDI inflow for the seven months for this FY. While the FY'21 witnessed an inflow of $1.145 billion against $1.577 billion in the same period last year, Pakistan recorded an inflow of $192 million in January compared to $219 million in January of the previous fiscal year. The main cause for this decline is said to be the increased net outflow to Norway, while there is a considerably low inflow from the country to Pakistan this FY.

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The data on the website of SBP shows that Pakistan's economy and all the sectors have largely relied on the inflows from China that was $402.8 million against $502.6 million in the same period, previous FY. China's FDI in Pakistan is the highest when inflows from other nations are considered. While initially, the total inflow from China to Pakistan was $707.2 million last FY, it reduced to $402.8 million after an outflow of $304.4 million.

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Data on the SBP portal revealed that there has hardly been any inflow from Norway this FY, while there has been a net outflow of $25.8 million. The net FDI inflow from Norway to Pakistan stood at $288.5 million last FY. There was a total inflow of 444.9 million from Netherlands. Hong Kong, UK, Malta and the US in the last FY, Pakistan media reported.

Sector-wise investments in Pakistan 

While the power sector including coal and hydel in Pakistan are well placed this FY, inflow in the gas and exploration sector fell to $136.7 million compared to $186.5 million in the last FY. The growth of the oil and gas sector in Pakistan has suffered due to the lack of interest investors have shown in the past few months.

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The trade sector attracted an inflow of $118 million compared to $22.3 million from the last FY. The electrical machinery sector of Pakistan has also suffered this FY as the inflow fell to only $70 million compared to the previous FY's $133.2 million.

Exports in Pakistan have also taken a backseat that the financial sector exports said is likely to gain pace once Pakistan's name is removed from the FATF's grey list. Given the state of foreign private investment (FPI), it has fallen by 43.2% to around $910 million against the inflow of $1,598 million during the fiscal year'20.

FATF to Pakistan

Pakistan's economy has been hit as investors have seemingly been swayed by its involvement in money laundering that helps terrorist organisations like Al-Qaeda and Lashkar-E-Taiba. FATF had ruled out a 27-point action plan last year to pursue matters related to money laundering, terrorist financing, and the financing of proliferation. Pakistan couldn't comply with 6 of the 27 points in the global watchdog's action plan.

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The FATF had directed Islamabad in 2019 to jot an action plan to curb money laundering and terror financing activities, however, the deadline was extended due to the pandemic. After a hearing in October last year, FATF has given Pakistan time until June 2021, to get its name omitted from the FATF's grey list. Pakistan's reputation is under direct scrutiny with FATF bolstering nations that fund terror outfits and organisations. Prime Minister Imran Khan had last year raised concerns and had said that "If Pakistan is blacklisted, its entire economy will be destroyed due to inflation and rupee won't have any value." The FATF plenary is ongoing at present, and Pakistan is likely to remain on the gray list.