Uncertainties cloud Pakistan’s economy

Uncertainties cloud Pakistan’s economy

Islamabad: Foreign direct investment in Pakistan rose 64% in the first two months of fiscal 2008-09, largely due to two big payments, but analysts said the outlook is clouded by security and economic concerns.

Pakistan attracted $754.1 million (Rs3,490 crore) in foreign direct investment, or FDI, in July and August compared with $458.9 million in the same period last year, central bank data shows. But analysts said two one-time payments made up most of the inflow.

“There were two main payments last month, one from Malaysia’s Maybank and the other from SingTel but both are one-time payments and not recurring payments," said Farhan Rizvi, a senior analyst at JS Global Capital Ltd.

Malayan Banking Berhad (Maybank) last month said it bought another 5% of Pakistan’s MCB Bank for about $213 million, raising its stake to 20%. Maybank, Malaysia’s top lender, bought a 15% stake for $680 million in May.

Singapore Telecommunications Ltd (SingTel) made a payment of $216.7 million in the first two months 2008-09, central bank data show.

Asif Qureshi, head of research at Invisor Securities, said it would be difficult to attract new foreign investment because of the global liquidity crisis and because of investor worries over Pakistan’s political, economic, and security problems. “We will see a gradual slowdown of FDI."

Rizvi said he expected FDI of $3 billion to $3.5 billion this financial year compared with $5.15 billion last year.

But analysts said Pakistan was likely to see more money leaving once a floor placed on its main share index to stop heavy stock losses is removed.

Exchange authorities imposed the floor on 28 August after sharp falls. They are due to review it later on Thursday but dealers expect the floor to remain in place.

Pakistan is struggling with widening fiscal and current account deficits while foreign reservers have fallen to less than $9 billion from a high of $16.5 billion about a year ago. The Pakistani rupee has lost 21% against the dollar this year, further undermining investor confidence.

Pakistan is battling Islamist militants in the north-west, and they have responded with suicide bombing across the country, including one on the Marriott Hotel in Islamabad last week. The blast at the hotel killed 54 people.

The commercial hub of Karachi has long had a reputation for sectarian feuding and violence but it has been relatively peaceful this year.

Credit ratings firm Moody’s on Wednesday changed its outlook on four Pakistani bank’s foreign currency deposits to negative, following a “substantial erosion" in the country’s external liquidity position. The previous day, Moody’s cut its ratings outlook for government bonds to negative from stable.

Sahar Ahmed contributed to this story.