Even though Pakistan has a liberal foreign investment policy that allows total profit repatriation, FDI repatriation on profits and dividends has seen a falling trend in the last 6+ months. A massive decline in the repatriation of profits and dividends by the multinational companies, however, does not come as a surprise in the current desperate times - with curbs and restrictions by the central bank on dollar outflow amid freefalling foreign exchange reserves. SBP’s forex reserves were less than $5 billion as of Jan-13, 2023 with import coverage of only one month. So with deteriorating foreign exchange reserves and dollar outflow along with falling foreign direct investment in the country, it is no brainer that the country is at its nadir as an investment hub.
The main squeeze in profit repatriation came as the economy entered FY23 with significant currency depreciation. As per the latest central bank data, the repatriation of profits and dividends on foreign direct investment has come down to $183 million in 1HFY23 versus $794 million in 1HFY22. In the 12-month period, the FDI repatriation of profits and dividends stood at $ 884 million in 2022 versus $1.44 billion in 2021, and an average of $1.5 billion for the last four years (2018-2021). Also, profit repatriation in 2020 – a year known for the COVID pandemic -was around $1.3 billion. And amid plummeting FDI trend, this definitely does not bode well for attracting any fresh investment.
Due to the dollar shortage, a sum of around $1 billion of dividend and profit repatriation is reportedly stuck. And the decline in repatriation has been felt across all sectors – be it power, telecom, transport, energy, or food and beverages. While multinational organizations have been operating in the country and have faced volatility and instability in the past, many foreign investors and MNCs have requested the central bank for partial or smaller repatriation in the current situation.
The bad news is that the situation is not likely to appease in the near future as the forex situation in the country will remain under duress, which also means more FDI woes and more pressure on attracting new investment.
Comments
Comments are closed.