THE State Bank of Pakistan’s proposed new policy on overseas investment of resident Pakistanis comes at a time when the entire nation is in the grip of the Panama Papers fever. It also indicates the SBP’s will to discourage capital flight.

The draft of the proposed policy has been circulated among all relevant quarters for their input.

The most outstanding feature of the proposed policy is that it bans investment by resident Pakistanis in the real estate and property abroad. It also makes it mandatory for those overseas Pakistanis who come back to Pakistan permanently to establish with documentary proof that their overseas businesses and properties were financed by their earnings abroad.

Over the last two years, resident Pakistanis are reported to have invested over $4bn in Dubai’s real estate sector. Bankers say with this ban, one big door of capital flight will be closed.

Finance Minister Ishaq Dar is on record informing the parliament back in May 2014 that according to some estimates $200bn of Pakistanis was stashed in Swiss banks.

The most outstanding feature of the proposed policy is that it bans investment by resident Pakistanis in the real estate and property abroad. It also makes it mandatory for overseas Pakistanis, who come back home permanently, to establish with documentary proof that their overseas businesses and properties were financed by their earnings abroad

“The proposed policy on overseas investment by resident Pakistanis fills the gaps that were misused for money laundering and capital flight in the past,” says a Ministry of Finance official.

The proposed policy will discourage investment in shell companies and special purpose vehicles (SPVs). However, an elaborated guideline has been proposed for resident Pakistanis for equity investment in these companies and SPVs, but with close monitoring to prevent money laundering.

“Money laundering is seen as a global menace,” says a senior SBP official stressing the point that tighter rules for shell companies and SVPs are an imperative in the current global socio-economic realities.

The resident Pakistanis will be allowed to invest overseas only in such countries “whose foreign exchange regulations permit the repatriation of profit/dividend, disinvestment proceeds, sale proceeds and liquidation proceeds back to Pakistan.” Officials say an elaborate and transparent procedure is being prescribed to keep an effective check on implementation of these rules.

Outward foreign direct investment will be allowed only in economic activity generating ventures in any field of business from establishment/incorporation/acquisition of wholly owned subsidiary to joint ventures or setting up of branch offices. Overseas investment limit for resident Pakistanis up to $5m will be retained by the SBP. Proposals for investment of more than $5m will be recommended by the SBP to the Economic Coordination Committee of the Cabinet for approval. However, requests from commercial banks will be evaluated and approved by SBP regardless of the amount to be remitted abroad for this purpose.

The proposed policy also allows individuals, sole proprietors and partnership concerns to invest abroad (against allowed financial commitments) with a cap of 50pc of their net worth calculated by taking average of last three declared tax returns filed with the FBR.

Published in Dawn, Business & Finance weekly, May 9th, 2016