Foreign investors repatriate $274.7m in two months

KARACHI: Foreign companies operating in Pakistan sent home a significant amount of repatriated earnings in the first two months of the fiscal year 2025, thanks to persistent improvement in foreign exchange reserves.

The State Bank of Pakistan released data on Thursday that showed that foreign investors’ profit and dividend outflows in July and August of FY25 were $274.7 million, a sharp 458 per cent increase from the same period last year.

The month-on-month outflows of earnings and dividends did, however, slightly decline in August of this year. In August, multinational corporations and international investors participating in the local stock market sent $135.6 million, down from $139.1 million in the previous month, to their respective countries. In July and August of FY25, the amount of profit repatriation on foreign direct investment increased to $268.1 million from $43.9 million in the same period last fiscal year. Profits and dividends from investments were paid out in July and August of this year amounted to $6.6 million, as opposed to $5.3 million in the same period last year.

“Although the numbers appear higher on a yearly basis, they reflect normalized repatriation, as the government halted profit repatriation during certain months last year to manage external liabilities,” said Awais Ashraf, director research at AKD Securities Limited. “Normalized repatriation suggests that the government is allowing the transfer of profits abroad for foreign entities,” he added. A significant change in policy by the SBP, which had tightened control over capital outflows in the previous fiscal year because of default risks, is responsible for the significant increase in the repatriated earnings of foreign investors this year. Gains in foreign exchange reserves supported by a reduction in the current account deficit allowed the SBP to loosen its strict controls over outflows.

The monthly decrease in August was ascribed to the central bank’s elimination of all outstanding dividends and earnings that were owed to foreign investors.Pakistan’s foreign exchange reserves have more than doubled since June 2023. The reserves have increased from $4.4 billion in June 2023 to $9.5 billion as of September 20.

The International Monetary Fund’s executive board has approved a $7 billion loan programme for Pakistan, which will contribute to the country’s FX reserves being further strengthened. The initial $1 billion of the loan is expected to be paid to the nation immediately. MNCs were able to return large profits and dividends to their home countries thanks in part to the notable increase in corporate profitability of companies doing business in Pakistan. With earnings of Rs1.7 trillion in FY24, the KSE 100 index companies reported the highest earnings, up 25 per cent from the previous year. The banking sector’s earnings increased by 35 per cent to Rs591 billion (36 per cent of the total KSE-100 index profitability). The financial businesses experienced the largest outflow of profits and dividends, reaching $59.6 million in July-August, compared with $3.7 million a year earlier, the SBP’s data showed. The transport sector followed with $36 million in repatriations, and the power sector came in third with $32.8 million in outflows during the first two months of the current fiscal year.