Pakistan, grappling with a shortage of US dollars, has seen a significant outflow of foreign exchange as international investors repatriated dividends and profits at unprecedented levels.

In fiscal year 2024 (FY24), foreign investors withdrew $2.2 billion, the highest outflow since the $2.3 billion withdrawn six years ago. This surge, representing a dramatic 569.2 per cent year-on-year increase, is primarily due to a low base in FY23.

The country’s foreign exchange reserves were critically low in FY23, prompting the government to impose restrictions on dollar outflows to avoid a potential default. Consequently, repatriations fell sharply to $331 million, an 80.3 per cent decrease from FY22, marking one of the lowest figures on record.

A pivotal change occurred in June 2023 when Pakistan reached a Staff Level Agreement (SLA) worth $3 billion with the International Monetary Fund (IMF).

The agreement mandated the removal of capital controls and a shift towards a more functional foreign exchange market. This move, driven by foreign pressure and the IMF’s conditions, resulted in the lifting of these restrictions, leading to a substantial increase in outflows in FY24.

In particular, May 2024 set a record with the highest monthly outward remittance of $918.1 million.

Notably, the outflow for the year exceeded the total foreign investment of $1.52 billion. Key sectors contributing to this outflow included Financial Business, Power, and Communications, with the Financial Business sector repatriating the most at $638.6 million.

Among the countries, the United Kingdom led with $558.57 million in repatriated profits, a substantial increase from $20.14 million the previous fiscal year. The UAE and Netherlands followed in repatriation figures.

Despite the significant outflow, there is an optimistic outlook for Pakistan’s economy. The State Bank of Pakistan (SBP) has confirmed that there are no outstanding profit repatriation payments, alleviating concerns of foreign companies and potentially attracting new investors. The recent Fitch rating upgrade further supports the country’s economic stability.

On a positive note, Pakistan’s foreign exchange reserves saw a 110 per cent increase, reaching $4.92 billion in FY24.

However, JPMorgan has cautioned that unresolved dividend backlog issues might impact the PKR in the short term. Addressing these could improve transparency and enhance the attractiveness of Pakistan as an investment destination.