Pakistan asks Saudi Arabia for $1bn oil facility in CY24

ISLAMABAD: Just ahead of the IMF’s review talks, Pakistan has made a formal request to the Kingdom of Saudi Arabia (KSA) for provision of $1 billion oil facility on deferred payment for the calendar year 2024.

“Pakistan has made a formal request for $1 billion Saudi Oil Facility (SOF) on deferred payment with effect from January 2024. The KSA has not yet given its confirmation, and its exact modalities will be worked out within the next couple of months, including attached cost and other terms and conditions,” top official sources confirmed to The News here on Tuesday.

The SOF has been made part of the financing plan agreed upon and worked out by the IMF for placing a $3 billion Standby Arrangement (SBA) programme for Pakistan’s oil economy until the end of March 2024. The existing Saudi Oil Facility will expire in December 2023. So far, Islamabad has received $300 million during the last three months (July–September) of the current fiscal year. Under the existing SOF, KSA had made a total disbursement of $700 million from March to September 2023, and it was hoped that another $300 million might be disbursed in the form of SOF till the end of December 2023.

Another official said it was a positive development, but there was bad news as the Islamic Development Bank (IsDB) made a pledge of $3.3 billion under the ITFC mechanism for a year period in the last financial year, under which it was supposed to provide $1 billion during the current fiscal year. Now the IsDB has indicated slashing it down from $1 billion to around $250–500 million in syndicated loan facilities for the current fiscal year. The IsDB is expected to grant its final assent at its upcoming board meeting, which will be held in December 2023.

The IsDB’s team has recently negotiated with Pakistani authorities and indicated a reduction in its syndicated loan amount owing to a variety of reasons, including facing difficulties in generating dollar loans from international financial institutions, keeping in view the higher interest rates at the global level.

Meanwhile, the Ministry of Finance has started making preparations for holding upcoming review talks with the IMF mission, expected to be held within the first 10 days of next month (November 2023). However, the exact schedule of the IMF’s review mission is not yet confirmed. The Federal Secretary of Finance has convened an important meeting of all ministries, divisions, and departments concerned on Thursday (tomorrow) to secure updates from concerned ministries for materialising all structural benchmarks, indicative criteria and performance criteria agreed with the IMF for the end of September 2023 under the $3 billion SBA programme. The Ministry of Finance has made all-out efforts to restrict the budget deficit target within the limits sought by the IMF. The Ministry of Finance had warned the provinces to curtail their spending, and the latest provisional estimates suggest that Punjab and Sindh had curtailed the spending spree. Another challenge for restricting the overall fiscal deficit will be rising debt servicing requirements that would, of course, balloon and stand beyond Rs8.3 trillion to Rs8.5 trillion for the current fiscal year 2023–24 against the initially envisaged target of Rs7.3 trillion in the wake of surged policy rate of SBP.