A Steep Fall

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It ought to concern the government, even as it revels in its victory at the joint session, that FDI (Foreign Direct Investment) in the country fell 12pc year-on-year in the first four months of the current fiscal year. That this has happened just as FDI trends have overcome Covid restrictions and are rising across the world should worry policy makers even more, especially since the reasons given so far have to do with volatility in the rupee-dollar exchange rate and overall economic uncertainty. Now they would be more desperate than ever to get the IMF program restarted because without it national reserves will not reach levels projected in the annual budget.
It also implies that the non-debt part of reserves will shrink even more, adding to the uncertainty about the economy. Hopefully things will become a little clearer when SBP’s monetary policy committee meets on Nov19, a week ahead of its scheduled meeting, to announce the new interest rate regime. The market has so far priced in a 100 basis points increase which, even if unfavourable to some, will shed uncertainty about the way forward. But whether it will be enough to plug the hole in foreign investment remains to be seen.
There’s also the fact that the Saudi government hasn’t so far transferred any of the $4.2 billion loan that it promised. And equity and money markets have started wondering how long this particular uncertainty will last. Because authorities were no doubt counting on the additional fiscal space granted by the loan to help tilt IMF in favour of our position and get it to release the next tranche of the bailout facility. The longer that doesn’t happen, the more the local economy is going to suffer.
The FDI trend also shows that the Chinese are no longer pouring in the kind of money into Pakistan’s economy that they were doing for the past few years. That raises questions of its own, since the Middle Kingdom has been our largest foreign investor for far too long. Critics will say that such are the fruits of keeping all your eggs in one basket, but the economic situation of the last few years did not allow much in terms of diversity. Al eyes re on the SBP meeting for now, and how long Riyad will take to sign the cheque it promised, and how that effects the deal with the IMF. Till then, unfortunately, the economic outlook will only get worse.