In a significant development, Pakistan has recently taken steps to boost foreign investments and ease restrictions on the repatriation of profits earned by multinational companies. This decision comes as the country experiences increased supplies of US dollars in its domestic economy, which is sending a positive signal to global investors and encouraging them to consider new investment opportunities in Pakistan.
The State Bank of Pakistan (SBP) has released data indicating that multinational companies (MNCs) repatriated a substantial $163.7 million in profits in September 2023. This marks a remarkable 447% increase compared to the approximately $30 million sent in September 2022 and a 247% rise compared to the $47 million repatriated in August 2023. Over the past 18 months, the repatriation of profits had been limited, with amounts ranging from $2 million to $60 million per month. This limitation was primarily due to Pakistan’s critically low foreign exchange reserves and the looming risk of default on foreign debt payments.
Foreign company representatives estimated that approximately $1.5 billion to $2 billion in accumulated profits and dividends had remained undispersed over the past year and a half, despite Pakistani laws permitting foreign investors to repatriate 100% of their profits to their home countries. The increase in the supply of foreign currency can be attributed to a government crackdown on currency smuggling and hoarding, as well as efforts to encourage overseas Pakistanis and traders to use official channels for remittance transfers.
Another contributing factor to this positive change is the conclusion of the International Monetary Fund (IMF)’s $3 billion loan program in June 2023. In the first quarter of fiscal year 2023-24, profit repatriation increased by 266% to $213 million, compared to $58 million in the same period the previous year.
Various sectors have seen notable increases in profit repatriation. The petroleum refining sector reported the most significant increase, with nearly $54 million repatriated in the quarter, compared to zero in the same quarter the previous year. The financial sector sent close to $37 million, marking a substantial increase from a little over $5 million the previous year, while the transport sector dispatched nearly $22 million, a substantial rise from less than $2 million in the corresponding quarter of the previous year.
Other sectors, including mining and quarrying, transport equipment (automobile), and power, also saw notable amounts of profit repatriated 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, it’s worth noting that 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. This drop can be attributed in part to foreign exchange constraints and a decline in profits for some foreign corporations due to a slowdown in the domestic economy.
In an additional move aimed at strengthening controls against money laundering and terrorist financing risks, banks and microfinance banks offering branchless banking services are now advised to conduct biometric verification of account and wallet holders for cash-in and cash-out transactions at branchless banking agents’ locations, starting from January 31, 2024. This requirement complements the existing biometric verification processes already in place for other transaction types and customer categories.
This shift in policy signals Pakistan’s commitment to creating a more favourable environment for foreign investments, making it an attractive destination for global investors. As the country works to ensure the ease of doing business and facilitate profit repatriation, it sets the stage for increased economic growth and prosperity in the region.
