Profit outflows jump by 237pc in eight months

Repatriation of profits and dividends during the first eight months of the current fiscal year jumped by 237 per cent, reaching close to the inflow of foreign investment in the same period.

The State Bank of Pakistan’s (SBP) latest data shows that the central bank eased the outflow of profits and dividends on foreign investments. The poor outflow of profits in FY23 was widely criticised by investors, while independent economists termed the policy as an anti-investment strategy. However, despite the easing of profit outflow, the inflow of foreign investment further declined by 17pc during July-Feb FY24 compared to the same period of the last fiscal year.

It is believed that the International Monetary Fund (IMF) was also critical about the SBP’s policy of having tight control over the outflow of profits and dividends on foreign investments. Both the present and previous governments have been trying their best to meet all the conditions and directions issued by the IMF regarding the recovery of the economy.

Repatriation nearly matches FDI inflows in 8MFY24

According to SBP data, the total outflow of profits during the eight months of FY24 was $759.2 million compared to $225m in the same period of the last fiscal year; an increase of $534.2m or 237.4pc.

However, the outflow of profits and dividends was slightly lower than the FDI inflow of $820m during the same period. The outflow was just $61m less than the inflows of FDI, which means the inflows could not help the country improve its dollar requirement. The SBP arranged dollars to keep the reserves at $8 billion; however, this is not enough to bear the burden of the trade deficit and debt servicing. In April, $1bn is required to pay against the maturity of the Euro bonds. At the same time, the country is expected to receive $1.1bn from the IMF, which means the reserves of the SBP would not see any significant change.

The sector-wise data shows that the higher profits outflow of $206m was for the manufacturing sector, which was just $28m in the same period of the last year.

Only four sectors noted big volumes of profit outflows, including manufacturing, wholesale and trade ($197.3m), electricity and gas ($110m), and finance and insurance ($105m).

According to the data, the outflow of profits and dividends in February was $64.9m compared to just $4.9m in the same month of the last year. This included $64.5m as profits on FDI and an amount of $0.4m as return on foreign portfolio investment (FPI).

Despite massive fluctuations in the equity market, foreign investors succeeded in taking out $55.5m in profits on account of FPI during July-Feb of FY24; an increase of $37m from the same period of the last year.

Pakistan has been a neglected country by foreign investors, and FDI is declining each year. The biggest investors remained China for many years, but the inflows drastically reduced during FY24.