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Profit repatriation surpasses FDI by 28pc

KARACHI: The repatriation of foreign exchange in the form of profits and dividends on foreign direct investment (FDI) surpassed the net FDI inflow by 28 per cent in the first five months of the current fiscal year.

Data released by the State Bank of Pakistan (SBP) on Thursday shows that the outflow in the form of profits and dividends on FDI was $591 million in July-Nov.

The country received a total FDI of $460m during the same five months, which shows the outflow was higher than the inflow by $131m or 28pc.

FDI fell 45pc year-on-year in the five months, putting pressure on the government that is already facing rising debt servicing and declining foreign exchange inflows.

The total outflow, including the payment on the foreign portfolio investment, was even higher. The total payment rose to $727m, although it was lower than $802m paid in the same period of the last fiscal year.

The situation was better in 2015-16 because FDI was higher than the payment on FDI. FDI amounted to $840m while the repatriation remained $640m.

The situation has reversed this year. This can become a bigger problem by the end of the fiscal year as the figure might cross $2.5bn. The increased outflow of dollars is alarming in the wake of falling foreign exchange reserves. The country’s reserves have been declining for the last couple of months. They amounted to $23.1bn on December 16, down notably from $24bn in October.

The exchange rate is already under pressure in the open market.

Falling foreign exchange reserves can create more instability in the currency market.

Currency dealers have been demanding that the regulators should improve the situation by increasing the supply of dollars while independent economists suggest the government should devalue the rupee. They believe the local currency is overvalued since goods and services are expensive in the domestic market.

The country’s exports have been declining for some time. Now export proceeds cover only 50pc of imports, which reflects a deviation from the situation that existed 10 years back when they equalled up to 80pc of the import bill.

Another report showed the repatriation of profits and dividends in 2015-16 was $2bn. It can be more problematic in the wake of an increasing current account deficit, which jumped 91pc to $2.6bn in July-Nov.

courtesy : dawn news

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