KARACHI: There is a need to reassess the utility of foreign investment in Pakistan as the outflow of profits and dividends crossed the $1.3-billion mark by the end of the third quarter of 2016-17.

Despite China’s leading role in the recent rise in foreign direct investment (FDI), inflows remained largely ineffective due to the rising outflow of profits and dividends.

The State Bank of Pakistan (SBP) reported on Tuesday that profits and dividends repatriated from the country rose to $1.33bn in July-March. Higher repatriation of profits and dividends is usually recorded in the last quarter of the fiscal year. This means the annual repatriation can reach $2bn by the end of June.

Even if the repatriation of profits continues at the current pace, total reverse remittances will amount to about $1.8bn for the fiscal year.

This should be a cause for concern for the government, which is trying to strike a balance between the trade deficit and remittances sent by overseas Pakistani workers. The external sector is in trouble because the trade deficit is at a record high while remittances declined year-on-year at the end of the third quarter of 2016-17.

Policymakers received criticism for a ballooning current account deficit, which was over $6bn during the first nine months of 2016-17. This has left the government with little space to keep foreign exchange reserves above $20bn. Reserves have been falling since October 2016.

According to the SBP report, the payment on FDI alone crossed $1bn during the nine months, which is slightly higher on a year-on-year basis.

There was no significant change in the payment on foreign portfolio, which remained around $260 million against $268m a year ago.

The government expected that the repayment on FDI and foreign debt servicing would not see substantial change until 2019. But the scenario has changed with the unexpectedly high trade deficit coupled with falling remittances.

Experts believe the nine-month current account deficit has weakened the country’s position in the international bond market. It means the government will have to either pay a higher interest rate to raise dollars through bonds or borrow from international commercial banks.

The highest amount, $191.3m, was repatriated through financial businesses during the nine-month period while the food sector sent abroad $161.3m. Investment in the food sector is on the rise as major food chains establish their businesses in major cities.

Repatriations from oil and gas exploration, petroleum refining and chemical sectors were $102m, $92.9m and $87m, respectively.

Published in Dawn, April 26th, 2017