The developing countries need foreign direct investment (FDI) inflow to support their balance of payment account. However, in Pakistan's case, there's a need to revise the FDI policies due to the exceeding amount of repatriation over the FDI inflows. In an interview with WealthPK, Qaiser Bengali, a senior member of the National Finance Commission (NFC) and former economic advisor to the Sindh government, says the multinational companies operating in Pakistan have a net negative impact on the country's external sector, as the amount of dollars they are remitting out exceeds the amount of inflow in the form of foreign direct investment (FDI). According to the data released by the State Bank of Pakistan, multinational corporations (MNCs) transferred $532.2 million to their respective destinations abroad from July to November in the FY2023-24. Among the sectors, the petroleum sector remitted the highest profit of $22.6 million, followed by the food sector, which sent $1.2 million.

Meanwhile, dollars repatriated from the financial business and power sectors amounted to $58.1 million and $52.9 million, respectively, during the first five months of the fiscal year 2023-24, with November contributing $3.8 million and $2.6 million to each sector, respectively. Qaiser Bengali attributes the mismatch between repatriations and dollar inflow to the flawed policies adopted by successive governments over time. "Pakistan's FDI policies are crafted in a manner that primarily draws investment tailored to meet the domestic demand rather than focusing on the export sector. Eventually, the country's external sector becomes worse off, as these foreign companies remit their profits in dollars abroad." It is time, he points out, to attract foreign direct investment into the export sector. This will compensate for the dollar outflow in the form of repatriations by dollar inflow in the form of enhanced levels of exports. Qaiser Bengali disapproves of the "restriction on the profit outflow" option.

"There is an opinion that imposing restrictions on the outflow of profits could be productive. However, given the government's overarching strategy to attract up to $100 billion through the Special Investment Facilitation Council (IFC), this strategy will discourage future investment." Apart from that, there is a pressing need for a comprehensive policy revision that extends beyond a singular focus on managing reserves. The government should seek to foster an environment that encourages domestic capital formation. This involves incentivizing local businesses, entrepreneurs, and industries to have joint investment ventures with foreign companies, he adds. In conclusion, a revision of policies toward FDI can be instrumental in preventing Pakistan from experiencing a balance of payment crisis.

Credit: Independent News Pakistan (INP)