KARACHI: Repatriation of profits and dividends by foreign companies operating in the country increased by 30 per cent during the first half of this fiscal year compared to the same period last year.

The State Bank of Pakistan (SBP) reported on Monday that the country paid $1.202 billion as profits and dividends during July-December 2017-18 versus $928 million in the corresponding period last year.

The net foreign direct investment (FDI) fell during the six months while the payment on FDI rose considerably. The net FDI in FY18 stood at $1.382bn whereas the payment of profits and dividends on FDI was $1.055bn, with the latter constituting 76pc of the total FDI. Compared to the six months of fiscal year 2017, the net FDI was $1.421bn while the outflow of profits and dividends on FDI was $723m, making up 51pc of FDI.

Power sector attracted the most FDI at $535m, followed by construction $350m, financial business $157m and oil and gas exploration $105m. Telecommunication witnessed the highest profits and dividends outflow valued at $166m, with power sector $134m, financial business $130m, food $126.6m and oil and gas exploration $122m trailing behind.

The evolving trend of the FDI is disturbing for Pakistan as it shows shrinking shares from all countries but China, which has become the country’s largest trade partner and investor.

With the increase in outflow of profits and dividends the pressure on foreign exchange reserves has increased, widening the current account deficit.

According to the SBP report, the payments of profits on foreign portfolio investment in six months of the current fiscal year were 146.6m versus $205m in the corresponding period last year.

If the current trend of the outflow of profits and dividends continues, it could reach $2.5bn by the end of this fiscal year, posing a big burden in the wake of increasing debt servicing payments. The need for more dollars has forced the government to borrow short term loans from the commercial markets, adding more to debt servicing.

The debt servicing in fiscal year 2017 jumped to $8.157bn from $5.318bn in 2016. In the first quarter of fiscal year 2018, the amount stood at $2.094bn, indicating that at the end of this fiscal year the total could be more than $8bn.

Published in Dawn, January 30th, 2018