Foreign investment continues to decline

Net foreign investment during 11mo FY11 continues its downward trajectory with a 6% YoY decline in total inflows to USD 1.74bn. Foreign investment during the May11 stood at USD 173mn, down by 23% YoY. The repercussion of a fragile economy, compounded by a deteriorating law and order situation, has adversely affected direct foreign investment which has witnessed a decline of 30% YoY to USD 1.39bn during 11mo FY11.

Asian investment gains strength

Lower foreign investment from the EU and US regions is primarily responsible for the contraction in FDI. FDI from the EU has fallen sharply by 72% YoY to USD 170mn during 11mo FY11 from USD 603mn in the corresponding period of last year. Similarly, FDI from the US declined by 50% YoY to USD 211mn from USD 422mn during the period Jul-May10.

On the other hand, FDI from West Asia (Gulf countries) has jumped ahead by 122% to USD 308mn during the period under review. Direct foreign investment from the South and East Asia has more than doubled to USD 257mn during 11mo FY11 from USD 127mn in the same period of last year.

Portfolio investment – showing signs of weakness

Portfolio investment during 11mo FY11 stood at USD 347mn compared to an outflow of USD 134mn during the corresponding period of last year. However, portfolio investment has shown recent signs of weakness as net investment of USD 20mn during the ongoing quarter implies a decline of 55% and 88% from USD 44mn and USD 166mn in 3Q FY11 and 2Q FY11 respectively. The slowdown in portfolio investment can be attributed to deteriorating relations between Pakistan and the United States as American investment constitutes 75% (USD 260mn) of portfolio investment during 11mo FY11.

Global Securities Pakistan

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