Profits repatriation surges seven-fold in July-October

KARACHI: Foreign companies operating in Pakistan sent back $485.4 million in profits and dividends in the first four months of the current fiscal year, a seven-fold increase from a year earlier, as the government cleared a backlog of payments that had been delayed due to a balance of payments crisis.

In October alone, the multinational corporations (MNCs) and foreign investors in the stock market repatriated profits and dividends to their home countries totaling $272.5 million, according to data from the State Bank of Pakistan.

The amount of earnings that were repatriated was $163.7 million in the previous month. In July-October FY2024, the profit repatriation on foreign direct investment increased to $456.2 million, a stunning 680 percent increase over the same period the previous year.

Profits and dividends from portfolio investments were paid out in the first four months of the current fiscal year, totaling $29.2 million as opposed to $71.3 million in the same period last year.

Analysts said that increased repatriated incomes have resulted mostly from the MNCs' backlog of profits and dividends being cleared after the State Bank of Pakistan allowed these businesses to move foreign cash to their overseas headquarters.

In an attempt to address the balance of payments crisis, the government introduced import restrictions the year before. It also stopped sending dollars outside in an effort to stop capital flight and strengthen the currency.

The government lifted the import ban and permitted banks to settle importers’ letters of credit and repartition earnings generated by foreign businesses, thanks to a $3 billion International Monetary Fund bailout package approved in July. In addition, the government cracked down on currency and other smugglers and implemented several administrative measures to stabilise the exchange rate.

“The government had stopped repatriating foreign profits primarily because its foreign exchange reserves were running low,” said Sana Tawfik an analyst and economist at Arif Habib Limited.

The repatriated profits are getting better because the government began clearing the backlog of MNC profits and dividends that had to be repatriated during the previous and current fiscal years, Tawfik added.

The view that overseas companies are purchasing dollars in order to pay dividends to investors abroad is further supported by the downward pressure on the rupee brought on by the growing demand for dollars in the currency market.Moreover, the leading multinational corporations with operations in Pakistan were able to transfer more funds back to their headquarters due to the increase in [corporate] earnings.

Topline Securities data indicates that in the first quarter of FY2024, KSE index businesses posted their highest quarterly earnings ever, amounting to Rs417 billion, an increase of 52 percent over the same period the previous year. This exceeds the average growth of 13 percent over the last ten years.

The food industry reported the largest profit outflows, followed by the transportation and petroleum refining sectors, according to the SBP data. In July–October of FY2024, the food sector repatriated $68.4 million outside. During the same months last year, the sum was zero.

In the first four months of FY2024, the international transport businesses remitted $67.2 million to their headquarters, up from $1.8 million in the same period last year. The petroleum refining companies transferred $55.5 million in July-October. That compared with zero-sum during last year.