Profit repatriation by foreign investors surged by 266 percent to $213 million during the first quarter of fiscal year 2023-24, compared to $58 million in the same period of the previous year. This move comes after Pakistan lifted an unannounced ban on foreign companies, allowing them to freely send their earned profits to their headquarters abroad.
Data from the State Bank of Pakistan (SBP) reveals that multinational companies (MNCs) repatriated a 17-month high of $163.7 million in September 2023. This marks a staggering 447 percent increase compared to the approximately $30 million repatriated in September 2022 and a 247 percent rise compared to the $47 million repatriated in August 2023.
Over the past 18 months, repatriation of profit had been notably low, ranging from $2 million to $60 million per month. This was primarily due to the country’s critically low foreign exchange reserves and the looming risk of default on foreign debt payments.
Foreign companies estimated that roughly $1.5 billion to $2 billion in accumulated profits and dividends had remained undispersed over the past year and a half, despite Pakistani laws allowing foreign investors to repatriate 100 percent of their profits.
Foreign companies can repatriate profits as the domestic economy witnesses a surge in US dollar supplies, sending a resounding message to global investors to consider resuming new investment projects in the country. The improved supply of foreign currency is attributed to a government crackdown on currency smuggling and hoarding, as well as initiatives to encourage overseas Pakistanis and traders to use official channels for remittance transfers.
The conclusion of the International Monetary Fund (IMF)’s $3 billion loan program in June 2023 has also played a pivotal role in this gradual recovery.Â
Various sectors contributed to this remarkable trend, with the petroleum refining sector leading in profit repatriation, sending nearly $54 million in the quarter compared to zero in the same quarter the previous year.
The financial sector followed suit, dispatching close to $37 million compared to a little over $5 million in the previous year. The transport sector also saw a significant increase, sending nearly $22 million compared to less than $2 million in the corresponding quarter of the previous year.
Additional sectors, including mining and quarrying, transport equipment (automobile), and power, also made notable profit outflows to their headquarters. The United Arab Emirates (UAE) and Chinese companies emerged as the top two profit senders in the quarter, dispatching $69 million and $19 million to their respective homelands.
However, the SBP’s annual report for 2022-23 indicated a decline in profit repatriation to $331 million in FY23 from $1.7 billion in the previous year. The drop in repatriation can be partially attributed to foreign exchange constraints and a decline in profits for some foreign corporations due to a slowdown in the domestic economy.
