July 29, 2007	Sunday	Rajab 13, 1428

KARACHI, July 28: Outflow of foreign exchange in the form of profits and dividends has sharply increased by 60 per cent during the fiscal 2006-7 turning the foreign investment into a liability for the country.

Despite high reserves of foreign exchange, the country is struggling to meet the widening trade deficit, which reached $13.54 billion last year making the issue of foreign exchange outflow more crucial for the country.

Pakistan witnessed an outflow of $804 million (Rs48.240 billion) as profits and dividends during the last fiscal ended on June 30.

The outflow is the direct impact of foreign investment as a number of companies are either acquired by the foreign investors or they became majority share holders.

The policy makers have put no restriction on the outflow of profits and dividends from the country even 100 per cent investment can be taken out without any restriction.

The biggest outflow was noted in telecommunications sector and about $151m (Rs9 billion) went abroad as profits and dividends.

The telecom is also the sector, which attracted highest foreign investment of about $1.4bn but the forex outflow was almost same in the form of import of mobile phones and related apparatus.

Power appeared as another important sector, which witnessed an outflow of $136m (Rs8.160 billion) during the same year.

The sector is expected to see heavy investment in the coming years as the country is facing serious shortage and the government is planning to attract more independent power projects to meet the rising demand. This foreign investment would further increase the outflow of foreign exchange from the country.

Along with the power sector the banking also received heavy investment and a number of take-over and mergers were witnessed during the year just ended.

An outflow of $116 million (Rs7 billion) went abroad as profits and dividends from the banking sector. Banks have been making record profits for last four years and the growth in this sector is expected to continue and this will further increase the outflow.

Recently, foreign investors have shown interest to acquire Saudi Pak Commercial Bank and the acquisition could cause more outflows from the country.

Chemicals sector saw an outflow of $53 million, pharmaceuticals $51.8 million, petroleum refining $48.7 million, oil and gas exploration $44.8 million and food $38.8 million.

The privatisation has been a major reason for large share holdings of the foreign investors. The government has a list of some giant organisations to be offered to the foreign investors. These included Pakistan State Oil, Sui Northern Gas, Sui Southern Gas, Pakistan Steel, PIA and stakes in OGDCL and PTCL, etc.

If the foreign investors acquire majority shares in these companies, the country would face a serious problem to arrange foreign exchange for the outflow of profits and dividends.

Analysts said that after privatisation of above units, not only the outflows would acquire a difficult shape but the country would be left without other source to improve its foreign exchange reserves.