The repatriation of profit on foreign investments rose by 114 percent in the first half of the current Fiscal Year (FY) 25. As per reports, profit repatriation was restricted in FY 24 as the cash-strapped nation could not afford to run its foreign reserves down.

 

Islamabad, however, was forced to loosen the restriction on the outflow of foreign currency because of conditions set by the International Monetary Fund (IMF). Furthermore, foreign investors who had parked their funds in the country also found the financial restrictions to be harsh, as they frequently lamented Islamabad’s policy regarding repatriation.

 

The United Kingdom ranked first in terms of profit repatriation with an outflow of $423.7 million. China, which has a vested economic interest in Pakistan, ranked fourth, contributing only $91 million to the outflow figure.

 

While it seems like a good idea to restrict outflows during Pakistan’s time of crisis, financial experts have commented that it is only a temporary fix. The removal of these restrictions could encourage foreign investors as Pakistan will seem like an attractive destination for investments.

 

Islamabad has been attempting to attract foreign investors but with little success. Various initiatives have been set up, including Uraan Pakistan, which aims to increase the country's investment levels.

 

Data released by the State Bank of Pakistan (SBP) revealed that during July-December FY 25, the outflows stood at a staggering $1.215 billion. This leaves the SBP with a reserve amount close to $11.5 to $12 billion, according to reports.

 

The reserves are alarmingly low for Pakistan as they are only enough to cover Pakistan’s import needs for 2.5 months. This reveals the country’s long-standing economic weakness, which stems from negative net export revenues.

 

The SBP wants to achieve its target reserve of $13 billion by the end of FY 25. However, with outflows growing, the SBP’s vision to grow its reserves may remain just that: A vision.

 

Furthermore, outflows could detrimentally impact the exchange rate, causing the rupee to weaken. This could reverse the progress of foreign reserve growth as import controls and restrictions on profit repatriation have previously played a key role in reserve growth.

 

This hurt the importers the most, as a depreciated rupee could procure fewer goods and services at previous prices. If importers choose to absorb the extra costs, causing their profit margins to shrink, the impact could worsen.

 

Another segment of the business community that will suffer are firms with debt denominated in foreign currencies. These companies will now have to foster higher profitability to be able to meet their rising interest payments. The interest payments will rise as a fall in the rupee’s value will require more currency to make payments.