KARACHI: The repatriation of dollars by foreign companies in form of profits and dividends fell 88 per cent during the first eight months of FY23, data released by the State Bank of Pakistan (SBP) shows.
Dwindling profits and dividends have reflected low turn of profits by the companies and strict restrictions on outflows from the country.
The government’s policy of curbing dollar outflows severely impacted the foreign direct investment (FDI) which dropped by 40pc during the July-February period of FY23.
According to the central bank, the FDI plummeted to $788m during 8MFY23 against $1,315m in the same period last year.
The foreign companies remitted $225 million in profits and dividends during 8MFY23 against an outflow of $1,146m in the same period of 8MFY22, a staggering decline of 88.4pc.
The central bank has been trying to manage the shortfall of foreign currencies — mostly US dollars — through restrictions on opening letters of credit (LCs) to curtail imports significantly, but on the other hand, this has created raw material shortages impeding industrial activities causing massive layoffs, particularly in export-oriented sectors.
The profit outflows in February were just $4.9m against $132.9m in the same month last year, reflecting the poor health of foreign exchange reserves.
Profit payments on FDI during the first eight months of the current fiscal year were $188m compared to $1,037.8m last year, a discouraging indication for the companies willing to invest in Pakistan, the SBP data further shows. However, the profit outflows on foreign portfolio investment (FPI) during 8MFY23 were $35.9m compared to 108.6m last year.
The highest outflow was noted from mining and quarrying amounting to $124.9m in 8MFY23 compared to $114.8m in the corresponding period last year.
However, the manufacturing sector witnessed a steep fall in profit outflows to $27.9m during July-February 2022-23 compared to $374m in the same period last year.
The outflow from the financial and insurance sector, which is still making good profits despite the unfavourable economic situation, dropped to $18m this year compared to $181m in 8MFY22.
The outflows from the electricity, gas and air-conditioning sectors totalled $32.9m in 8MFY23 compared to $126.3m in the same period last year.
Similarly, the profit outflow from the information and communication sector plunged to just $6.6m against $69m last year.
Analysts are of the opinion that Pakistan won’t be able to attract foreign investments unless it allows investors to repatriate their profits freely.
They say tight control over dollar outflows leaves the only option of illegal system of hundi and hawala that the foreign companies usually avoid.
