KARACHI: Outflow of profits and dividends on foreign direct investment (FDI) plunged by 40.4 per cent in 1HFY19, the State Bank of Pakistan reported on Monday.

During July-December, the outflow of profits and dividends on FDI clocked in at $628.8 million against $1,055.4m in same period last year, witnessing a decrease of $426.6m.

Analysts attributed this drop to the appreciation of dollar against the rupee; since the profits and dividends are paid in local currency and then converted into dollars to send abroad, reducing the size of outflow. Since July 2018, dollar has gained about 15pc against the rupee.

“Other than the devaluation, foreign companies are changing their views about investing in Pakistan. They may have retained some profits while a number of companies are going for expansion so they invested their earnings,” said Arif Habib Ltd Director Samiullah Tariq.

The largest decline in outflows was noted in telecommunications, dipping to just $33.8m from $166m in same period last year.

Another decrease was recorded in power sector as the profits outflow declined to $66.9m as against $133.9m in corresponding period of 2017-18.

“Power companies have the circular debt problem while some are reinvesting for expansion. These two reasons coupled with the dollar appreciation have cut the size of outflow,” said Tariq.

Similarly, oil and gas exploration’s profits outflow fell to $70.4m from $122m while those of banking decreased from $60.8m versus $130m in 1HFY18.

“Banking profits declined mainly because of penalties on two big banks — Habib and United –– which have large foreign investments as well,” said Mr. Tariq.

Profit outflows from food sector also declined to $82m during the period under review as against $126.6m in the corresponding half of last year.

Only beverage showed higher outflow of $54.8m, increasing from just $11m in 1HFY19.

The profits and dividends on portfolio investments also dropped to $130.7m, from $146.6m with analysts believing that the income was reinvested in the market.

The total outflow of profits — the sum of FDI and portfolio investment — came out at $759.5m during the period, as compared to $1,201.2m in July-December 2017: recording a decline of $442m or 37pc.

Published in Dawn, January 29th, 2019