Pakistan's links with terror-tainted Taliban could derail FDI flows, crater economy

9/9/2021
Amid the ongoing political turmoil in Afghanistan, foreign direct investment (FDI) into Pakistan is slowing down. According to official data, in July - the first month of the new financial year, FDI flow into Pakistan stood at $89.9 million - down 31 per cent compared to the corresponding month in 2020.

Experts feel that instability in Afghanistan could affect Pakistan's ability to attract FDI especially at a time when the economy is going through a fragile patch with a rising debt level. Though the current interim Taliban government in Afghanistan has the stamp of Pakistan's Inter-Services Intelligence (ISI), the Imran Khan administration will have to adopt extreme caution amid widespread protests not only against the hardline regime under UN blacklisted Mullah Mohammad Hassan Akhund but also against Islamabad.

The Taliban have freed all the 4000 Tehrik-e-Taliban Pakistan (TTP) fighters, responsible for several killings of civilians and security forces since 2007, besides the ghastly attack at Peshawar Army Public School that left over 130 school children and staff members dead.

The Express Tribune noted that attracting "this much FDI seems too difficult, more so because of the latest political developments in neighbouring Afghanistan. Kabul's takeover by the Taliban in mid-August can scare away prospective foreign investors due to perceived challenges to political stability in the region."

Santander Trade-economic data and information portal said that "significant security risk due to the operations of terrorist organisations" is attached to Pakistan. Besides , a high risk of corruption -- Pakistan has not signed the OECD Anti-Corruption Convention -- is also a cause for concern.

In the previous financial year - July to June - the total FDI inflow was estimated at $1.87 billion down from 2019-20's $2.598 billion. While Covid 19 pandemic and the subsequent worldwide restrictions led to a slowdown in the much-needed FDI flow, there are murmurs that Chinese investments are thinning down.

China, which is Pakistan's largest investor, has expressed its concerns over the deteriorating security situation after a spate of terror attacks.

A chunk of FDI flows into the China Pakistan Economic Corridor (CPEC).

"Chinese investments into CPEC have been thinning albeit very quietly," an analyst told India Narrative.

Take a look. On August 20, a bomb blast in the Gwadar area in Balochistan killed two Pakistani children but was targeted at the Chinese. In July, a bomb blast inside a bus near the Dasu hydropower project killed at least 13 people including nine Chinese nationals. Prior to this, a bomb blast took place at an upmarket hotel at Quetta.

The fact that Pakistan continues to be place in the Financial Action Task Force (FATF) grey list, is also a major consideration for investors.

Pakistan based think tank Tabadlab suggested "that FATF grey-listing, starting in 2008 and till 2019, may have resulted in cumulative real GDP losses of approximately $38 billion."

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