Arooj Zulfiqar

Foreign direct investment (FDI) presents an immense opportunity for Pakistan to revive its economy, stimulate growth, and unlock its true potential. “Pakistan, a low-income country, is confronted with an ongoing crisis and desperately needs FDI to bring stability to the economy, leading to sustainable economic growth and development,” said Azfar Ahsan, former chairman Board of Investment (BoI). “The country has the lowest investment-to-GDP ratio in the region and has a wide gap in the saving-investment ratio due to weak policies,” he said.

“Political instability and cumbersome tax policies have been the biggest factors affecting FDI in Pakistan.” “The persistent political tensions have eroded foreign investors' confidence and led to a sharp drop in inflows. Thus, political instability can be a deal-breaker for investors attempting to establish presence in a new country. Therefore, it's important for Pakistan to make the political climate more attractive to investors,” he explained.

Azfar Ahsan maintained that political instability led to discrepancies in a country's taxation policies, which hurt its ability to attract FDI. “Pakistan's inconsistent tax policies have slowed investment inflows.” According to the State Bank of Pakistan, FDI plunged by almost 29% year-on-year to $121.6 million in April 2023 and 23% in the first 10 months of the current fiscal year.

This loss in FDI, combined with a 13% drop in remittances from overseas Pakistanis during July-April 2022-23, poses a major risk to Pakistan's capacity to meet its external obligations, as it confronts a default-like position due to declining foreign exchange reserves. The SBP reported that the FDI in April was $121.6 million against $170.6 million in the same month last year, posting a decline of 28.8%.

However, foreign investment fell by 23% to $1.17 billion during July-April 2022-23, compared to $1.52 billion over the corresponding period of last fiscal year. Azfar Ahsan stressed that policy reforms and stability were key to attracting FDI. “By creating an investor-friendly climate, the country can boost FDI inflows and unlock its true potential.” He also called for an overhaul of tax policies to remove discrepancies and create a favourable investment environment.

Credit: Independent News Pakistan-WealthPk