KARACHI: During the first eight months of the current fiscal year, the repatriation of profits and dividends increased by 237%, nearly matching the influx of foreign investment during the same period.
According to the most recent data released by the State Bank of Pakistan (SBP), the central bank reduced the amount of profits and dividends from foreign investments. Investors harshly criticized the FY23 profit outflow, and independent economists referred to the policy as an anti-investment tactic. The inflow of foreign investment decreased by 17% between July and February of FY24 compared to the same time in the previous fiscal year, even though the profit outflow eased.
The International Monetary Fund (IMF) is thought to have expressed disapproval of the SBP’s strict controls over the disbursement of profits and dividends from foreign investments. The current administration, like the one that came before it, has made every effort to comply with the IMF’s requirements and guidelines for the economy’s recovery.
In 8MFY24, repatriation almost equals FDI inflows.
SBP data shows that the overall profit outflow for the first eight months of FY24 was $759.2 million, up from $225 million during the same period in the previous fiscal year. This represents a 237.4 percent rise of $534.2 million.
Nonetheless, during the same year, FDI influx of $820m was marginally greater than the outflow of earnings and dividends. The country’s dollar requirement was not improved by the inflows, as the outflow of FDI was only $61 million less than the inflows. To maintain the reserves at $8 billion, the SBP arranged funds, but this is insufficient to cover the cost of the trade imbalance and debt servicing. $1 billion must be paid in April to cover the Euro bonds’ maturity. The SBP’s reserves would not change significantly because the nation is anticipated to receive $1.1 billion from the IMF at the same time.
According to sector-specific data, the manufacturing industry experienced a greater profits outflow of $206 million, compared to merely $28 million during the same period previous year.
There were just four industries with significant profit outflows: manufacturing, wholesale and commerce ($197.3m), gas and electricity ($110m), and finance and insurance ($105m).
The data shows that the profits and dividends paid out in February were $64.9 million, as opposed to just $4.9 million in the same month the previous year. This comprised $64.5 million in foreign direct investment (FDI) earnings and $0.4 million in return on foreign portfolio investments (FPI).
Foreign investors managed to withdraw $55.5m in profits on account of FPI from July to February of FY24, up $37m from the same time the previous year, despite significant volatility in the equity market.
Foreign direct investment (FDI) into Pakistan has been steadily dropping over the past few years. For many years, China was the largest investor, but during FY24, inflows significantly decreased.
