KARACHI: The outflow of profits and dividends on foreign investments plunged by 92.88 per cent during the first two months of the fiscal year 2022-23 compared to the same period last year because of lacklustre economic activities in the country.

The latest data released by the State Bank of Pakistan (SBP) on Tuesday showed that the repatriation of profits and dividends nosedived to $28.2 million in July-August against $396.4m during the same period a year ago.

Since the last quarter of FY22 (April-May), economic activities have started contracting mainly because of political uncertainty plaguing the economic horizon of the country.

The SBP data revealed that the outflow of profits on foreign direct investments (FDI) in July-August also fell to $26.6m from $372.8m during the same period last fiscal year. The profit on foreign portfolio investment decl­ined to $1.6m from $23.6m last year.

Lacklustre economic activities, political uncertainty blamed for the decline

Pakistan has failed to attract a significant amount of FDI for more than a decade, but the recent political turmoil has further damaged the country’s image abroad.

During July-August FY23, FDI fell by 26pc to $169m from $229.5m during the same period last year, reflecting the poor performance of the economy on the external front.

Analysts and economists believe the significant drop in profits and dividend outflows is also because of a ‘super tax’ imposed by the government on the corporate sector, besides poor economic activities in the country.

“The decline in profits and dividends is due to the imposition of super tax leading to reduced dividends payouts, the slowdown in economic activities and reduced demand amid floods,” said Tahir Abbas, head of research at Arif Habib Limited.

In June this year, Prime Minister Shehbaz Sharif imposed a 10pc super tax or poverty alleviation tax on large industries to relieve the general public of tax pressures.

Miftah Ismail, the then finance minister, said the tax would be applicable to 13 sectors, including cement, steel, sugar, oil and gas, fertiliser, LNG, textile, banks, automobile, beverages, chemicals, tobacco and airlines.

He said the tax rate on these sectors has increased from 29pc to 39pc.

According to the central bank data, the outflow of profits from the manufacturing sector fell to $0.6m in July-August FY23 from $159.3m during the same period last year, reflecting the poor state of the economy.

The outflow of profits from finance and insurance was $0.3m compared to $75m last year. Information and communication sent out no profit compared to a net profit of $46.9m in the first two months of FY22.

The outflow from transportation and storage was $1.2m against $45.4m last year. Mining and quarrying was the only sector that showed a higher outflow of $11.2m during the period under review, compared to $1.4m last year.

The country-wise outflows were $2.9m to the UK against $94.8m last year; $8.5m to the United States against $86.9m; $1m to the Netherlands against $47.3m; $0.1m to Switzerland against $41.4m; and $3.1m to China against $37.5m.

Published in Dawn, September 28th, 2022