Foreign firms send record $918.1m abroad in May

SBP clears backlog amid stable forex reserves, bolstering investor confidence

KARACHI:

Pakistan’s central bank allowed foreign companies operating in the country to repatriate a record-high profit and dividend of $918.1 million in May 2024. This move cleared a backlog accumulated over the past two years and helped restore international investors’ confidence in the country.

Despite significant foreign payments totalling $2 billion in April and May, the country’s foreign exchange reserves remained stable at over $9 billion until mid-June 2024. The State Bank of Pakistan (SBP) continued to purchase surplus US dollars from the domestic currency markets to maintain this stability.

According to central bank data, the repatriation in May alone exceeded the total dispatches recorded in the first 10 months of the outgoing fiscal year 2023-24. Multinational companies (MNCs) sent a total of $1.80 billion in the first 11 months of FY24, marking a 477% increase compared to $313.1 million in the same period last year.

Muhammad Awais Ashraf, Director of Research at AKD Securities, told The Express Tribune that record-high inflows of workers’ remittances, which reached $3.24 billion in May and remained significantly high in March and April, prompted the central bank to allow MNCs to clear their backlog of repatriation.

In March 2024, inward remittances hit a two-year high of close to $3 billion, and in April, the second-highest inflows of FY24 amounted to $2.81 billion.

M Abdul Aleem, Secretary General of the Overseas Investors Chamber of Commerce and Industry (OICCI), mentioned last month that OICCI members have been able to send earned profits without restrictions. He added, “The government has cleared all repatriation of profit and dividend up to the end of 2022.”

The government is smoothly clearing the queue of repatriation dues, prioritising payments to foreign airlines. An unannounced ban on foreign companies sending earned profits out of the country, imposed in July 2022 due to declining foreign exchange reserves, was lifted around September 2023.

Aleem stated that while foreign investors were satisfied with the lifting of the ban, they expressed concerns about rupee devaluation, which reduced the total dispatches in US dollar terms. Rupee devaluation and elevated inflation remain top concerns for foreign investors.

Foreign investors are still waiting for full-scale stability in the domestic economy and will make significant investments once marketed with the right projects. Aleem noted that Pakistan has high potential for attracting foreign investment, given its growing economy and population of over 240 million. Recent foreign investment, around $1.5 billion in a year, is less than 1% of GDP but could easily attract 3% of GDP with proper project marketing.

FX reserves below $9b

The country’s foreign exchange reserves, held by the SBP, slipped below $9 billion in the week ending June 21, 2024, after maintaining above this threshold for seven consecutive weeks, according to the central bank’s weekly update on Thursday. The SBP reported that reserves decreased by $239 million to $8.89 billion due to external debt repayments. However, FX reserves held by commercial banks improved by $31.6 million, settling at $5.31 billion during the week. Consequently, total liquid foreign exchange reserves held by the country stood at $14.21 billion as of June 21.