Foreign investors repatriate $139m in July

KARACHI: The repatriation of profits and dividends from foreign investments in Pakistan surged by 64.5 times to $139 million in the first month of the current fiscal year, data from the State Bank of Pakistan showed on Wednesday.

In July 2023, $2.2 million was repatriated. However, there was a 66.4 per cent decrease in the month-on-month outflows of profits and dividends in July this year. Multinational companies and foreign investors in the local stock market sent $415 million back to their home countries in the previous month.

The amount of profit repatriation on foreign direct investment increased to $133.9 million in July FY25 from $1.5 million during the same period last. year. In July of this year, $5.3 million in profits and dividends from portfolio investments were paid out, compared with $0.6 million during the same period in the last year.

The data indicates that the outflow of repatriated profits and dividends was higher than the FDI inflows the country received in July, which totalled $136 million.

Analysts attributed the year-on-year increase in repatriation to improvements in foreign exchange reserves amid a reduction in the current account deficit compared with the previous fiscal year. The month-on-month decline was attributed to the central bank clearing all backlogs of unpaid dividends and profits owed to overseas investors.

According to analysts, dividend repatriation in July seems normalized if compared with FY21/22 levels. “The YoY increase in repatriation is because last year Pakistan did not have adequate foreign exchange reserves and was on the verge of default. Now, the situation has improved somewhat,” said Saad Hanif, the head of research at Ismail Iqbal Securities.

“The month-on-month decline is due to almost all backlog payments being cleared in June, and the number is now back to normal levels as previously witnessed,” Hanif added.

The power sector experienced the largest outflow of profits and dividends, reaching $29.5 million in July, a 103-fold increase from the previous year according to SBP data. The transport sector followed with $21.2 million in repatriations, and the financial sector came in third with $16.1 million in outflows during the first month of the current fiscal year.

In July FY2025, Pakistan saw a reduction in its current account deficit due to an increase in remittances and an improvement in the balance of primary income. The deficit fell to $162 million, marking a 78 per cent decrease from the previous year and a 48 per cent decrease from the previous month.

Analysts pointed out that the current account deficit persisted due to a higher trade deficit and dividend and profit payments to foreign investors.

Pakistan is working to secure final approval from the executive board of the International Monetary Fund for a new $7 billion loan programme. This approval is delayed due to the pending confirmation of debt rollovers and bridging the country’s external financing gap.

Pakistan is also seeking approximately $4 billion in loans from Middle Eastern banks, with Saudi Arabia’s rollover of its previous debt still pending. Negotiations are ongoing for the continuation of the oil financing facility from Saudi Arabia. Recent reports indicate that Saudi Arabia has made an offer related to the Reko Diq project, and if Pakistani authorities accept this offer, it could facilitate both debt rollovers and additional financing.

In other news, Moody’s has upgraded Pakistan’s ratings to Caa2, citing the country’s improving macroeconomic conditions and moderately better government liquidity and external positions, which were previously at very weak levels.

“There is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the IMF on 12 July 2024 for a 37-month Extended Fund Facility (EFF) of $7 billion,” Moody’s said in a statement on Wednesday.

“We expect the IMF Board to approve the EFF in the next few weeks,” it said.

“Pakistan’s foreign exchange reserves have about doubled since June 2023, although they remain below what is required to meet its external financing needs. The country remains reliant on timely financing from official partners to fully meet its external debt obligations,” it added.

Pakistan’s foreign exchange reserves held by the central bank stood at $9.29 billion as of August 16.