Karachi: Recent reports have indicated that foreign investors in Pakistan are experiencing a significant decrease in the repatriation of profits and dividends due to the country’s dollar shortage.
Analysts have reported that in the first eight months of the current fiscal year, profits repatriated have decreased by 80%, totaling $225.1 million, in comparison to the previous year.
According to the State Bank of Pakistan (SBP), foreign investors repatriated $4.9 million in February 2023, a larger amount than the $2.9 million repatriated in the previous year. However, the SBP’s data showed that profit repatriation on foreign direct investment decreased to $188.1 million in July-February FY2023, a considerable decline from the $1.037 billion in the same period of the last fiscal year. Similarly, the outflow as payment against portfolio investment fell to $36.9 million compared to $108.6 million in July-February FY2022.
The country faces a critical shortage of foreign exchange, and the forex reserves held by the central bank are only enough to cover one month of imports. Pakistan’s central bank recently lifted restrictions on the import of hundreds of items. However, the question of when overseas investors will have priority to repatriate their profits and dividends is still uncertain.
To address this issue, the CEO of The Pakistan Business Council, Ehsan Malik, suggests that the government should prioritize attracting foreign investment and implement policies that support it. Malik added that the SBP should allow the pending dividends to be treated as repatriable share capital, allowing parent companies to add to their investment in Pakistani subsidiaries or other companies in the country. Moreover, Malik suggested that companies should measure and report progress on their year-on-year improvement in impact on the external account. As more inputs are indigenized and exports grow, the negative impact on the external account would subside.
In conclusion, Pakistan’s dollar shortage is significantly impacting the repatriation of profits and dividends for foreign investors. To address this issue, the government should prioritize attracting foreign investment and implement policies that support it. The SBP should also consider implementing measures that allow pending dividends to be treated as repatriable share capital, and companies should report progress on their impact on the external account.