Pakistan faces several economic challenges, including surging debt, and desperately needs foreign direct investment (FDI) beyond what it currently receives from Beijing, primarily through the China-Pakistan Economic Corridor (CPEC). Foreign investments have been affected by Pakistan’s political situation and security concerns.
Like other countries such as Vietnam, Bangladesh and Indonesia, Pakistan too has withdrawn large amounts of capital and has been on the Financial Action Task Force’s grey list since June 2018 and has seen a decrease in investment. According to the World Bank, Pakistan should increase private investments and exports if it wants to sustain strong growth, however, many investors have turned to other markets.
Pakistani policymakers are concerned that Chinese investment in the multi-trillion-dollar CPEC project has also slowed. Apart from that, the Chinese public sector or local government arms have undertaken the majority of the investments. Apparently, even Chinese private investors remain cautious of Pakistan.
The second stage of the China Pakistan Economic Corridor (CPEC) Is critical not only for Pakistan’s economic development but also for easing the pressure on the current account deficit. The Diplomat reported that despite Islamabad’s desperate efforts to attract investment, ‘to date there is limited evidence that private Chinese firms want to invest in Pakistan and CPEC’s second stage is effectively at a standstill’.
Dawn said, ‘We see foreign investors fleeing this country. Not only that the annual FDI flows into Pakistan have declined, but we also see its stock decreasing over the last five years. The FDI stock in the country has fallen from $41.9bn to $35.6bn in five years to 2020’. Foreign direct investment is essential for any country since it helps boost the economy and create jobs.
FDI will also help the country address its rising debt by supporting its balance of payments. The United Nations Conference on Trade and Development (UNCTAD) reported FDI into South Asia to have increased 20 percent to $71 billion, as investments in India surged 27 percent, while investments in the rest of the region were stagnant.