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Foreign exchange deposits: Pakistan gets assurance from China, Saudi Arabia

By Mehtab Haider
August 14, 2018

ISLAMABAD: In a last ditch effort to avoid going back to the IMF, Pakistan has received assurances from China and Saudi Arabia for solving its foreign exchange crisis but first the incoming PTI-led government will have to take ‘tough corrective measures’ on front, reducing imports and slashing the budget deficit in a big way.

Pakistan had officially asked Saudi Arabia during the tenure of the last PML-N-led regime for providing $5 billion deposits for keeping into foreign exchange reserves and provision of oil facility on deferred payments in a bid to ease out the balance of payment crisis, The News has learnt.

Now the prime minister-in-waiting Imran Khan has also established contacts as he received a phone call from the Saudi crown prince and it is hoped that the Kingdom will come forward to rescue Islamabad from avoiding the crisis and going back to the IMF to get another bailout package.

When contacted, former finance minister in PML-N-led government Dr Miftah Ismail on Monday said that they had requested both China and Saudi Arabia for helping Islamabad avoid the foreign exchange crisis. China, he said, agreed to help Islamabad and provided $2 billion after recent elections.

“We had requested Saudi Arabia to provide $5 billion for deposits to keep into foreign exchange reserves and Pakistan can pay them well on these deposits in our central bank. We have also requested provision of oil facility for five years on deferred payments. We are hopeful that Saudi Arabia will also come forward helping Islamabad overcome the crisis-like situation,” he added.

He recalled that Pakistan had requested the Islamic Development Bank (IDB) for three-year oil payment to the tune of $4.5 billion with $1.5 billion in each year starting from the current fiscal year from July 1, 2018. “We had not made a request of $4 billion cash loan to the IDB in our tenure in power,” he added.

After assuming reins of power, the official sources said that the incoming PTI-led government will have to demonstrate its ‘political will’ by taking tough and bold measures on account of reversing the surge in rising imports by increasing additional custom duty by one percent on all imported items except with a few sensitive food or medicines, raising the Regulatory Duty (RD) on luxury items and reducing the budget deficit by boosting revenues and curtailing expenditures projections for the short, medium and long term basis.

“First the incoming government will take steps to reduce the requirement of financing gap as Islamabad will have to discourage rising imports, boosting exports, attracting investment and remittances as well as launching international bonds in first two months. After taking the required steps, then the financing gap will be bridged by Beijing in a bid to avoid the IMF,” official sources dealing with this issue confirmed to The News here on Monday.

The official sources said that the projected financing gap stood at $11.6 billion with business as usual approach so the coming PTI-led government intended to take steps to slash this gap by $2 to $3 billion through reducing imports, increasing exports and investments. Then the remaining gap can be bridged by both China and Saudi Arabia, added the official.

However, sources in coming PTI-led government told The News on Monday that China was going to play a major role in bridging the financing gap in order to avoid the IMF. “We will have to take corrective steps first as the imports will be further discouraged by increasing additional customs duty and raising Regulatory Duty on luxury items,” said the official.

In the last fiscal year, China and its banks provided around $6.5 billion including rolling over of $500 million and increasing another $500 million as well as other bilateral assistance for various projects. China has already injected $2 billion inflows into Pakistan in the current fiscal year.