Macroeconomic Imbalances Contributing to Decline in FDI

The government has listed several reasons behind the decline in foreign direct investment (FDI) in the country including the high cost of doing business and macroeconomic pressures such as the current account deficit and balance of payments deficit. Official documents revealed that during the last year 2021-22 (FY22), net FDI stood at $1,867.8 million which was 2.6 percent higher than the corresponding period of the previous fiscal year. However, net FDI during the current financial year 2022-23 (July-Dec) decreased by 58.7 percent to $460.9 million from $1,114.8 million recorded in the corresponding period of the previous fiscal year. According to the official documents, the reasons for the decline in FDI included the Covid-19 pandemic, the high cost of doing business in the country, macroeconomic pressures such as the current account deficit and balance of payments deficit, and the disruption in food and energy prices due to Russia-Ukraine war. However, the government is taking all possible steps and making efforts to attract FDI into the country and facilitate investors. The steps being taken to increase the FDI in Pakistan include improving the business climate through initiatives such as the Pakistan Regulatory Modernization Initiative and other sector reforms, supporting the establishment of special economic zones (SEZs) to promote industrialization in the country, online Investment Facilitation Services like facilitating the issuance of work visa, approvals of branch/ liaison office, security clearance and issuance of airport entry passes,  addressing investor grievance through a special cell connected to an online portal, and the creation of projects portal and incentives’ portal on the BOI’s web site for the facilitation of potential investors.