KARACHI: Overseas investors repatriated profits of $159.2 million in the first month of 2021-22 (FY22), down 55 per cent from the corresponding month of the preceding fiscal year, according to data released by the State Bank of Pakistan (SBP) on Thursday.
The sharp drop in repatriation follows an annual increase of 20.5pc in the total outflow of profits in 2020-21 as foreign investors transferred $1.6 billion abroad.
A disproportionately high share in the total repatriation was of the payment of profits on foreign direct investment (FDI) as opposed to foreign portfolio investment (FPI). Of the total $159.2m, repatriation on FDI constituted 88.6pc in July.
Local laws allow 100pc foreign ownership of companies and impose no limits on the repatriation of profits to attract overseas investors.
The profit repatriation on FDI amounted to $141.1m, which was notably higher than the net FDI of $89.9m that the country received in the same month.
The repatriated profits of the telecommunications sector in July were $62.5m, up 2.1pc from a year ago. The food packaging sector sent abroad a total of $26.8m in July as opposed to zero outflows registered in the same month of 2020.
Other sectors that recorded notable repatriations in the period under review were financial businesses ($23.3m) and chemicals ($13.8m).
Speaking to Dawn, Topline Securities Research Director Syed Atif Zafar said one month’s data reflecting a drop in the profit repatriation does not point to any long-term trend. “Repatriations are directly linked to corporate earnings, which have been steady,” he said. He attributed the sharp decline in the profit outflows to random reasons, such as possible delays in earnings announcements.
With regard to the negligible repatriation on FPI, Mr Zafar said the current level of portfolio investment in the country is too low. “Pakistan received a portfolio investment of about $2.5bn in fixed-income instruments a year and a half ago. All of it has already been repatriated,” he said.
With the exception of exports and remittances, FDI is generally considered the best source of foreign exchange as it creates jobs without increasing the debt burden. However, some economists believe FDI in Pakistan has become a drain on the economy, thanks partly to annual repatriations.
In an earlier interview with Dawn, economist Dr Kaiser Bengali said the net impact of FDI on the national economy is negative. FDI has mostly been in services or consumption-based sectors, such as banks, telecoms, packaged food, beverages, drugs, toiletries, clothing etc, he said.
This means companies backed by overseas investors earn in rupees but repatriate their profits in dollars, which leads to a drawdown on the country’s foreign exchange reserves.
Published in Dawn, August 27th, 2021