Foreign investors cash out $567.7m from Pakistan in six months

KARACHI: The repatriation of profits and dividends by foreign investors in the country rose 161 percent to $567.7 million in the first half of the current fiscal year, the central bank data showed on Friday.

Multinational companies (MNCs) that do business in Pakistan and foreign investors in the stock market returned $35.4 million in profits and dividends to their home countries in December. This was in contrast to the $46.8 million in earnings that were repatriated the month before.

The profit repatriation on foreign direct investment increased to $521.4 million in July-December FY24 from $182.8 million during the same period of the last fiscal year.

During the first half of the current fiscal year, $46.3 million in profits and dividends from portfolio investments were paid out, compared with $34.8 million in the same period the year ago.

The MNCs' backlog of profits and dividends being paid out after the SBP permitted these companies to transfer foreign currency to their overseas headquarters caused by improvement in inflows is primarily responsible for the rise in repatriated earnings.

The approval of the International Monetary Fund's $3 billion stand-by arrangement for Pakistan had supported the rupee in July, but in early September, speculation and the smuggling of goods and foreign exchange over the Afghan border caused pressure on the interbank exchange rate. As a result, border controls were strengthened by the government, and the SBP declared plans to improve the capital and governance standards for exchange businesses.

The rupee strengthened gradually since October on the back of strong inflows in the forex market. The open market premium has largely been eliminated. Market participants have acknowledged greater autonomy for processing import transactions in recent months compared to the second half of last fiscal year, and the repatriation of dividends and profits have also picked up.

“Ensuring a market-determined exchange rate is critical to help buffer external shocks, rebuild SBP's FX reserves, and support growth,” the IMF said in a country report issued last week.

“Restoring public confidence in the exchange rate system and deepening the FX market will require allowing price signals to function without impediment and decisively abandoning tight management of the FX market,” it said.

“Relatedly, signaling strongly that repatriation of profits and dividends will not be restricted remains indispensable to attract high-quality FDI.”