Profit repatriation slows 66% month-on-month

Multinational companies (MNCs) operating in Pakistan repatriated profits and dividends worth $139 million to their headquarters abroad in July 2024, which reflected a slowdown in outflows after remaining at significantly elevated levels due to the clearance of backlog of the previous fiscal year.

Despite normalisation, the repatriation of profits and dividends surged 64.5-fold compared to a nominal $2.2 million remitted abroad in July 2023, which was because of the thin foreign exchange reserves in the country, according to the State Bank of Pakistan (SBP) data released on Wednesday.

In the backdrop of foreign currency outflows, the rupee depreciated Rs0.13 against the US dollar to Rs278.45 in the inter-bank market, partially reversing the gains achieved in the prior three consecutive days.

The profit repatriation was, however, 66.5% lower compared to the amount of $414.5 million sent in June 2023.

The outflow hit a six-year high at $2.2 billion in the previous financial year ended June 30, 2024 compared to only $331 million in FY23.

Foreign firms operating in sectors including power, transport, chemical and banking repatriated profits and dividends in double digits ranging from $13.5 million to $29.5 million each in July.

In the inter-bank currency market, according to the SBP data, the Pakistani rupee depreciated to Rs278.45 to a dollar, receding from a five-week high of Rs278.32 touched on Tuesday. It had cumulatively gained Rs0.34 in the past three days.

Despite the rupee fluctuation over conflicting reports, the currency has remained largely stable in the range of Rs278-278.74/$ over the past five months.

Exchange Companies Association of Pakistan reported that the local currency stood stable at Rs280/$ in the open market for the seventh consecutive working day.

The depreciation in the inter-bank market coincided with reports that Pakistan had not yet received guarantees for the rollover of $9 billion in loans from bilateral creditors and friendly countries.

Islamabad is due to repay the loans in the ongoing fiscal year if it fails to get them rolled over before maturity. The rollover is a must for securing final approval of the International Monetary Fund (IMF) executive board for a $7 billion loan programme. Earlier, Pakistan clinched a staff-level agreement with the lender in mid-July.

The approval of the IMF's Extended Fund Facility has been slightly delayed till September, as the programme was earlier expected to begin in August. Any prolonged delay in loan rollovers and the beginning of loan programme will mount pressure on the rupee.