KARACHI: Foreign companies operating in Pakistan sent abroad profits and dividends amounting to $2.1 billion in 2016-17, putting additional burden on the economy that already faces a current account deficit of over $12bn.

Profit repatriation has been increasing every year. The outflow of reverse remittances was close to the inflow of foreign direct investment (FDI) in 2016-17.

Although FDI in the last fiscal year rose to $2.4bn, it was still the lowest as far as regional countries are concerned. FDI was negligible compared to those recorded by neighbouring India and China over the same period.

The State Bank of Pakistan (SBP) reported on Tuesday that payments on FDI during the fiscal year rose to $1.73bn compared to $1.51bn in the preceding year.

Financial experts and economists have been warning the government to tackle the problem of increasing reverse remittances. But the government has devised no strategy so far to deal with it.

The outflow on foreign portfolio investment (FPI) declined in 2016-17 despite an overall increase in foreign investment. The SBP reported that payments on FPI fell to $376m compared to $400.5m in 2015-16.

This huge outflow has neutralised the impact of over $2.4bn of FDI. As a result, FDI failed to mitigate the effects of falling remittances and a record-high current account deficit.

In the monetary policy statement issued last Saturday, the SBP governor said the current account deficit is the biggest challenge facing the economy. The outflow of corporate profits and dividends has aggravated this problem.

The country has been facing an imbalance on many external fronts, including remittances sent by overseas Pakistanis and a massive trade deficit. The SBP’s falling reserves are unable to meet these imbalances, particularly the current account deficit, but the government claims that this gap is still manageable.

The outflow of foreign exchange in terms of debt servicing is about $5bn annually. Debt servicing consumes 25pc of export earnings as proceeds of foreign sales have been declining for the last five years.

Published in Dawn, July 26th, 2017