Profit outflows hit record high in May

KARACHI: Repatriation of profits and dividends on foreign investments in Pakistan surged to a record $918.1 million in May, the central bank data showed on Thursday, as the State Bank of Pakistan cleared the backlog of unpaid dividends and profits to overseas investors following an improvement in foreign exchange reserves.

In April, the total earnings that were repatriated were $56.6 million.In the first 11 months of the fiscal year 2024, multinational companies (MNCs) doing business in Pakistan and foreign investors in the stock market repatriated $1.805 billion in profits and dividends to their home countries. This represents a rise of 476.5 per cent, or nearly six times, over the same period last year.

“The SBP has allowed repatriation of profit by foreigners to clear the backlog of the previous year as the overall foreign inflows improve on the back of higher remittances and reduced trade deficit,” said Awais Ashraf, the director research at AKD Securities Limited.

“Last year foreigners were only able to repatriate $331 million against normal repatriation of $1.6 billion as external inflows channelized to clear higher external financing requirements of government,” Ashraf added.

According to the SBP’s data, profit repatriation on foreign direct investment increased to $1.699 billion in July-May FY24 from $257.2 million during the same period of the last fiscal year. During the 11 months of the current fiscal year, $106.60 million in profits and dividends from portfolio investments were paid out, compared with $55.9 million in the same period the year earlier.

Pakistan posted a $270 million current account deficit in May following three consecutive months of surplus. The large dividend payments to overseas investors and interest repayments resulted in the highest-ever monthly outflow of $1.4 billion in the primary income account in May.

Governor of the SBP Jameel Ahmad informed analysts during a post-monetary policy briefing this month that the SBP had cleared most of the backlog of dividends and profit repatriation.

The central bank allowed international companies to transfer foreign currency to their overseas headquarters due to an increase in forex reserves amid improved foreign inflows which have resulted in an increase in the repatriation of profits and dividends over the last five to six months.

The SBP’s reserves have increased from $4 billion at the end of June 2023 to $9 billion as of June 21, 2024 after the successful completion of the International Monetary Fund’s $3 billion stand-by arrangement.