The State Bank of Pakistan (SBP) data indicates the repatriation of profits and dividends on foreign investments in Pakistan experienced a significant fall of 80.4%, equating to $313.1 million, in the first 11 months of the current fiscal year.
May alone saw multinational corporations operating in Pakistan and foreign stock market investors send back $59.7 million in profits and dividends to their home countries. This figure shows a considerable increase from the $20.2 million transferred in the preceding month.
Breakdown of Foreign Direct and Portfolio Investment Outflows
The decline in profit repatriation is attributed to foreign direct investments (FDIs) and portfolio investments. The FDI profit repatriation dropped to $257.2 million from July to May of FY23, compared to $1.447 billion in the same period the previous year. Meanwhile, outflows of profits and dividends on portfolio investments shrunk to $55.9 million, down from $153.3 million.
Impact of Capital Controls
Pakistan’s foreign exchange reserves are rapidly depleting, increasing the risk of a national default due to the stalling of the International Monetary Fund (IMF) loan program. This situation has led to stringent capital controls, resulting in decreased profit repatriation by foreign investors.
Pakistan’s economy is precarious, as the nation faces a balance of payments crisis, with the central bank’s foreign exchange reserves plunging to a mere $4 billion—barely enough to cover a month’s import costs. Pakistan needs a staggering $23 billion to finance its current account, service external debt, and meet interest payment requirements for FY2024.
These fiscal challenges, import restrictions and higher interest rates aimed at curbing inflation have led to unemployment and the closure of various manufacturing units. Consequently, businesses are suffering from reduced profits and sending less money home from overseas.
