KARACHI: The outflow of profits and dividends on foreign investments fell sharply year-on-year by over 80 per cent in the outgoing FY23 reflecting poor performance of the economy.

The latest data issued by the State Bank of Pakistan (SBP) on Wednesday reveals that multinational companies repatriated just $331 million in 2022-23 against $1.680 billion in the preceding year.

The plunge in dollar outflows was due to poor economic conditions and the government’s policy to hold back the profits meant for payments to foreign investors during the outgoing fiscal year.

Restricting outflows to a minimum in the wake of poor foreign exchange reserves amid the fear of def­ault was severely criticised by independent economists and analysts.

However, the government faced an extremely difficult situation left with no option, particularly given the IMF’s reluctance to release the $1.2bn tranche long overdue under the 9th review of the $7bn programme, which expired on June 30.

The data showed that the outflow of profits tumbled by 80.3pc or $1.349bn in FY23. The foreign investment also dipped by 24pc to $1,455 million against $1,935m in the preceding year.

Pakistan is not in the good books of foreign investors while the PMLN-led coalition government’s policy to restrict the repatriation of profits and dividends had further damaged the country’s image as an investment destination. The persistent political and economic crisis is another discouraging scenario for attracting foreign investment.

The sector-wise breakup showed that the manufacturing sector was the biggest victim as outflows plunged to $49.8m in FY23 against $400.9m in FY22. The sector could not perform like the previous year due to many reasons while the poor economic growth rate of just 0.29pc also reflects this situation.

Among the prime victims of the poor economic growth within manufacturing, were textile followed by the auto sector.

The outflow from the mining and quarrying sector was about $169.7m against $207.9m in FY22.

The information and communication sector noted a massive decline in profits outflow from $166.4m in FY22 to just $13.8m in FY23.

The financial sector, which has been making profits for the last many years and is the biggest attraction for foreign investors particularly from the Middle East, noted a deep cut in the profits outflow to $36.2m against $270m in FY22. Transportation and storage recorded a profit outflow of just $8.6m in FY23 compared to $128.6m in FY22.

Analysts believe that the holding back profits by the country is highly toxic for foreign investors and could result in a further decline in Foreign Direct Investment (FDI).

Published in Dawn, July 27th, 2023