KARACHI: The repatriation of dollars by foreign companies plunged 88 per cent during the first 8 months of the current fiscal year reflecting low profits and stringent restrictions on outflows from the country.

Data released by the State Bank of Pakistan (SBP) on Monday did show that the government policy of curbing dollar outflows severely impacted the foreign direct investment (FDI) which dipped by 40pc during the July-February period of FY23.

The FDI plunged to $788m during 8MFY23 against $1,315m in the same period last year.

The foreign companies remitted $225 million in profits and dividends during 8MFY23 against an outflow of $1,146m in the same period of 8MFY22, a staggering decline of 88.4pc.

Foreign investment falls to $788m

The SBP has been trying to manage the shortfall of foreign currencies — mostly US dollars — through restrictions on opening letters of credit (LCs) to curtail imports significantly, but on the other hand, this has created raw material shortages hampering industrial activities causing massive layoffs, particularly in export-oriented sectors.

The profit outflows in February were just $4.9m against $132.9m in the same month last year, reflecting the poor health of foreign exchange reserves.

Analysts think Pakistan would not be able to attract foreign investments unless it allows investors to repatriate their profits freely.

Given tight control over dollar outflows, the only option is the hundi and hawala system, which is an illegal system that is mostly avoided by foreign companies.

The SBP data shows profit payments on FDI during 8MFY23 were $188m compared to $1,037.8m last year, a discouraging indication for the companies willing to invest in Pakistan. However, the profit outflows on foreign portfolio investment (FPI) during 8MFY23 were $35.9m compared to 108.6m last year.

The highest outflow was noted from mining and quarrying amounting to $124.9m in 8MFY23 compared to $114.8m in the corresponding period last year.

However, the manufacturing sector witnessed a steep fall in profit outflows to $27.9m during July-February 2022-23 compared to $374m in the same period last year.

The outflow from the financial and insurance sector, which is still making good profits despite the unfavourable economic situation, dropped to $18m this year compared to $181m in 8MFY22.

The outflows from the electricity, gas and air-conditioning sectors totalled $32.9m in 8MFY23 compared to $126.3m in the same period last year.

Similarly, the profit outflow from the information and communication sector fell to just $6.6m against $69m last year.

Published in Dawn, March 28th, 2023