Dismal foreign investment pushes Pakistan towards fresh IMF bailout package

The inflow of foreign investment, which analysts deem as an ultimate remedy to the dollar-hungry Pakistan’s balance of payment woes, is expected to remain dismal during the current financial year despite some improvement over last year.
For the last three years, from FY10 to FY12, the terrorism-hit country witnessed a sharp decline in the interest of offshore investors to invest in Pakistan’s private, public or equity sectors.
In FY10 the crises-hit country was able to attract foreign investment of over $2.86 billion that in FY11 contracted to $1.97 billion. The worst, however, was yet to come as FY12 saw only $ 708 million flowing into the dollar-hungry country from the offshore accounts. The current financial year, FY13, which is due to end on June 30 this year, is also less likely to rid the heavily-indebted country’s economic mangers of their concerns on the balance of payment front.
The total foreign investment during the three quarters of FY13, July-March, aggregated to $816.9 million. These figures are encouraging, marking an increase of $351 million or 75.5 percent, if compared with $465.5 million of last year’s corresponding period.
Of the total, $820.7 million came as Foreign Direct Investment (FDI), $198.7 million as portfolio investment and negative $3.8 million as Foreign Public Investment. Investment under the three respective heads, FDI, portfolio and public investment, in the country improved by 59, 339 and 92 percent from last year’s $515.5 million, negative $83 million and negative $ 50 million.
If the month of March is any criterion, the offshore investors seemed to have done away with their hard-to-go perceived fear for economic security in Pakistan.
During the month in review the inflow and outflow of FDI was, respectively, recorded at $186 million and $68.5 million compared to $164 million and $124 million of the same month in FY12.
In total, during July-MarchFY13 the country received FDI worth $1.59 billion while $969 million were divested from the country.
Given these unfavorable investment figures the cash-strapped Islamabad is perceived to be fast heading towards a predictable economic disaster.
The central bank, in its two quarterly reports, has expressed concern over the country’s fast depleting foreign exchange reserves that, up to March 29, have slid to $12.2 billion, of which only $7.12 billion belong to the State Bank.
The State Bank has even based, partly, its monetary policy decision for next two months on the position of the country’s external accounts keeping the discount rate intact at 9.5 percent.
While the economic observers foresee for the country a huge fiscal deficit of nearly 7 percent at home and a possible default on account of balance of payment, a fresh IMF bailout package appears to be an apparent short-cut the country is likely to opt for.
A six-member Pakistani delegation, led by Federal Finance Secretary Nasir Mahmood Khosa if Prime Minister Khoso failed to appoint a finance minister till then, is scheduled to leave for Washington to attend the April 11-22 annual spring meetings of the World Bank and IMF.
On the sidelines, the Pakistani team, also comprising Governor State Bank Yasin Anwar, is expected to enter into technical talks with the international lenders from IMF for a fresh bailout package that, reportedly, would range from $5 to $7.5 billion.
The Pakistani delegation would also meet their American friends to reconcile the disputed war reimbursements under the Coalition Support Fund (CSF) that Islamabad claims amounts to $2.5 billion. Washington, however, dubs this figure as exaggerated and puts it at not more than $ 1.5 billion.