Economic condition 'very fragile', says UK investment chief.

KARACHI -- Foreign investors are sweet-talkers. They tend to gloss over unpleasant facts while speaking to the press. So when the head of the UK's premier development finance institution (DFI) uses words like 'very fragile' for the state of Pakistan's economy, it should set off alarm bells in Islamabad.

'As an investor, it's obviously a concern. It obviously makes a difference as you think about what you might be able to do in the future,' said British International Investment (BII) Chief Executive Nick O'Donohoe while speaking to a small group of journalists at the British Deputy High Commission recently.

BII has made commitments of $350 million through debt and equity in a number of projects in renewable energy, financial inclusion and venture-capital space. In renewable energy alone, its $180m portfolio consists of about half a dozen wind, solar and hydro projects that produce a total of 462 megawatts.

Mr O'Donohoe stopped short of making a definitive comment on the possibility of sovereign default, but noted that 'some sort of clarity' was needed for foreign investors. 'Any investor will tell you that they hate uncertainty,' he said.

The clearest sign of trouble is that BII has been facing problems in repatriating its dollar dividends abroad. Pakistan is in the middle of a serious dollar shortage, with banks refusing to open letters of credit for even food and energy imports. Foreign exchange reserves of the country are at a multi-year low, forcing the government to stop large dollar outflows, including those by overseas investors.

According to Habib Yousuf, regional director of BII based in Karachi, the DFI has faced payment delays in terms of dollar-based dividends, beginning in the second half of 2022. 'But the problem isn't at a level where we'd be overly concerned about it,' he said in an attempt to downplay the seriousness of the complaint.

This is despite the fact that the country touts a liberal foreign investment policy that allows 100 per cent profit repatriation. According to one source, the total amount of dividends pending for repatriation to...