KARACHI (May 16 2009): Domestic shocks such as worst law and order situation, negative economic indicators, power shortage and future uncertainty have largely hurt foreign investment, which has posted a sharp decline of over 43 percent during the first 10 months of current fiscal year.

"During the last five years, Pakistan was the most favourite country for foreign investors in the wake of high profit margins, however at present foreign investors are reluctant to invest in Pakistan due to the discouraging economic indicators and domestic shocks," economists said.

They pointed out that reduction in private sector credit clearly reflects that local investors have also stopped new investment due to power shortage and worst law and order situation. Economists said that operation against militants and rising tension in the northern areas have also played an important role in the depleting net foreign investment.

"If the operation against miscreants in Swat and other northern areas would not end in next few weeks, it would put negative impact on the country\'s economy in long term," they added. They said that the country\'s overall net foreign investment, which was in positive zone in the initial months of current fiscal year, has been constantly on decline for last few months due to domestic shocks.

"Only portfolio investment was on decline during the first half of current fiscal year due to high outflows from the equity market, however at present both Foreign Direct Investment (FDI) and portfolio investment are presenting negative growth," they added.

They said that major dip has been witnessed in the portfolio inflows, as foreign investors are reluctant to invest in the equity market due to uncertainty on the political and law and order side. "Foreign investors have adopted wait and see policy and stopped new investment in the country until the situation in the northern areas is cleared," they added.

The State Bank of Pakistan on Friday said that net foreign investment comprising foreign direct investment (FDI) and portfolio investment has registered a decline of some 1.6496 billion dollars during the first 10 months (July-April) of current fiscal year-2009. After current decline, overall net foreign investment stood at 2.2129 billion dollars during the first 10 months of FY09 as compared to 3.8625 billion dollars in the same period last fiscal year.

Statistics show that both Foreign Direct Investment (FDI) and portfolio investment have presented a negative trend during the period. FDI has shown a decline of 13.8 percent, while the massive outflow from the country\'s equity market has posted a significant decline of 792 percent in portfolio investment.

FDI stood at 3.2054 billion dollars during July-April as compared to 3.7191 billion dollars in the corresponding period of FY08, depicting a decrease of 513.7 million dollars.

Portfolio investment stood in the negative at 992.5 million dollars during the first 10 months of current fiscal year over the investment of 143.4 million dollars in the same period of last fiscal year. Total private investment including privatisation proceeds shows a decline of 27.9 percent to 2.7539 billion dollars during July-April as previously it stood at 3.818 billion dollars.