Pakistan to ask Saudi Arabia, UAE: Convert $5 bn deposits into loans

ISLAMABAD: The Kingdom of Saudi Arabia and the UAE have granted rollover of $5 billion deposits for one year period in order to help Islamabad overcome its economic crisis, The News has learnt.

Now after getting the rollover of $5 billion deposits from Saudi Arabia and the UAE, Pakistani authorities are mulling over options to make fresh request to both the countries for converting deposits into government borrowed loans.

Under the IMF’s three-year programme of $6 billion Extended Fund Facility (EFF), Pakistan is required to secure rollover of deposits and bilateral loans from major crediting countries including Saudi Arabia, the UAE, China and others. If the deposits of $5 billion are converted into bilateral government loans, then it will provide cushion of Rs750 billion for financing of escalating budget deficit for the current fiscal year 2019-20.

“Under the IMF conditions, Pakistan has secured rollover of $5 billion deposits from KSA and UAE lying with the State Bank of Pakistan (SBP) for one year. Now Pakistani authorities are mulling over options for making request to both Saudi Arabia and UAE for converting these deposits into bilateral government loans,” top official sources told The News on Sunday.

When contacted, Special Secretary Finance Ministry and official spokesman Omar Hamid Khan said, “We have not yet requested the Saudis to convert the deposits into a loan. We may or may not do it,” he added. However, he confirmed that the rollover of deposits was done for one year.

Although, the special secretary showed reluctance to concede conversion of deposits into bilateral loan, but official sources still insist upon this development, stating that Saudi Arabia had agreed in principle to convert its deposits of $3 billion into bilateral loan that would pave the way for utilising this amount for financing budget deficit.

“Both sides are exchanging draft agreement to this effect,” said official sources, but the Finance Ministry wanted to make it public when both sides agreed onall points and the stage of signing of agreement would come with mutual consent.

The budget documents for 2019-20 showed that the budgetary support from friendly countries was estimated at Rs750 billion for the current fiscal year. This amount of Rs750 billion was made part of the budget documents for 2019-20 on the basis of this assumption that the deposit of $5 billion from Saudi Arabia and UAE would be converted into bilateral government loan. With exchange rate of over Rs150 against a dollar, the existing $5 billion could easily convert into fetching Rs750 billion for financing the budget deficit.

Under the IMF agreement, Pakistan has estimated to keep the budget deficit at Rs3,137 billion equivalent to 7.1 percent of GDP for the ongoing financial year. The IMF was really interested to keep primary deficit at 0.6 percent of GDP for the current fiscal year. The budget deficit was initially estimated at Rs3,560 billion but the provincial revenue surplus was assessed at Rs423 billion in order to curtail the deficit at Rs3,137 billion or 7.1 percent of GDP.

Although, Pakistani authorities were so far upbeat to keep budget deficit within the desired limits, the financing of the budget deficit was the main critical area under the IMF agreement because the Fund slapped restrictions on borrowing from the SBP at zero by end of every quarter of fiscal year.