Pakistan seeks $4.2bn from Saudi Arabia after dip in forex reserves

ISLAMABAD: In a bid to secure a breathing space amid the depleting foreign currency reserves, Pakistan is likely to secure a $4.2 billion additional package from the Kingdom of Saudi Arabia, including $3 billion deposits and a $1.2 billion oil facility, on deferred payment.

With the materialisation of augmented financial package, the total financial assistance from the KSA for Pakistan would go up to $8.4 billion in total.

“We have made a request to the KSA for an additional $3 billion deposits and a $1.2 billion oil facility on deferred payments. A formal request was made almost two weeks ago, and now the deal was at an advanced stage for finalisation,” a top official of the Finance Division confirmed while talking to The News on Thursday night.

The KSA had already extended $4.2 billion, out of which a $3 billion deposit was rolled over in early December 2022, probably for one year. The existing oil facility of $1.2 billion has been underutilization by $100 million on monthly basis. “With the additional facility of $4.2 billion, the total package will be increased to $8.4 billion,” said the top official and added that the deal of augmentation of the package would be done within December 2022. One official said that the KSA was most likely friendly country which was going to provide an additional $3 billion deposits.

The official said that Pakistani authorities were still making last-ditch efforts to convince the IMF for striking staff-level agreement prior to upcoming Christmas and added that the IMF executive board would definitely take up approval of the next tranche after Christmas and New Year holidays. In such a scenario, the IMF executive board would meet after January 10, 2022.

However, differences still persisted over striking broader agreement on macroeconomic and fiscal framework for the current fiscal year in the aftermath of severe floods that compelled Pakistani authorities to bring down the GDP growth target from 5 per cent to 2pc and jacked inflation rate from 12.2 per cent to 23-25 per cent on average for the current fiscal year 2022-23. With changes in nominal growth ranging from 25 to 27pc, all other macroeconomic targets were required to be re-adjusted to align with the new ground realities. When the nominal growth jacked up, it resulted in paving the way for demand from the IMF to increase the tax-to-GDP ratio and other macroeconomic targets.

The minister for finance held several meetings with ambassadors of Western countries and US envoy with the request to ask the IMF for showing a lenient attitude towards Pakistan, but its outcome was not yet known. However, Pakistani authorities were confident that the financial package from the friendly country would be materialised, and then the finance minister would engage the IMF with strength instead of concluding the 9th Review from a point of weakness.

Pakistan’s economic managers are running from pillar to post for securing dollar inflows at a time when the foreign currency reserves are depleting.

According to the SBP statement issued on Thursday, the total liquid foreign reserves held by the country stood at $12.58 billion as of 2-Dec-2022. An official said foreign exchange reserves have dropped to the lowest level in four years. The break-up of the foreign reserves position shows that the foreign reserves held by the State Bank of Pakistan stood at $6.71 billion and net foreign reserves held by commercial banks were hovering at $5.86 billion.

During the week, ending on Dec 2, 2022, the SBP reserves decreased by US$784 million to US$6,714.9 million. This decline is on account of the payment of US$1,000 million against maturing Pakistan International Sukuk and some other external debt repayments. Some of the debt repayments were offset by inflows, mainly US$500 million received from Asian Infrastructure Investment Bank (AIIB).