KARACHI: The outflow of profits and dividends on foreign investment drastically declined during the first five months of the current fiscal year (FY23), reflecting both positive sign for lower repatriation of dollars and negative one for the poor economic growth.

The latest data released by the State Bank showed that $128.7 million was paid on foreign investments in Pakistan during July-Nov FY23 compared to $776m during the same period last year. The massive decline saved dollars for the country, but at the same time it reflected the poor economic growth which failed to generate profits on investments.

The weak economic performance further reduced foreign direct investment (FDI) in the country by over 50 per cent during the first five months of FY23 as it fell to just $430m against $885m during the same period last year.

Analysts and researchers said there is no hope for higher FDI in the coming months since the economic growth is much lower than expectations.

A recent State Bank’s annual report on the state of economy stated that the economic growth would be lower than the range set for FY23. The growth range for the current fiscal year is 3-4 per cent, while credit rating agencies estimate the growth at just 2pc against 6pc in FY22.

The highest outflow of profits worth $42m was noted from the oil and gas exploration sector in the first five months of FY23 against $22m during the same period last year.

The mining and quarrying sector paid profits worth $17.9m against zero outflow last year. However, all other sectors’ profits fell drastically during the period under review. The outflow of profits from the power sector in five months was $23.8m compared to $93.4m during the same period last year.

The highly lucrative banking sector had paid $148m in five months of FY22 as profits on foreign investments, but it fell to just $7.8m during the same period of FY23. Banks are mostly investing in government papers and avoiding lending to the private sector as the high interest rate has created higher risk of default.

The communication sector had paid $89.6m as profits in five months of the previous fiscal year, but it declined to $4.2m during the same period of FY23.

The highest outflow in five months of FY22 was $104.9m from the food sector, which fell to zero this year. Food packaging and beverages also offered zero profits this year compared to $37.6m and $33.5m, respectively, last year fiscal year.

Tobacco, transport and chemicals noted an outflow of $2.7m, $1.9m and $4.4m, respectively, during the first five months FY23 compared to $32.4m, $50m and $32.9m during the same period last year.

The low outflow shows lower profits produced this year which means the industries and services are not working efficiently to generate profits like the fiscal year FY22.

Published in Dawn, December 29th, 2022