close
Advertisement
Can't connect right now! retry

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!
August 9, 2020

Pakistan makes fresh requests for oil facility on deferred payment

Top Story

August 9, 2020

ISLAMABAD: The oil facility of $4.7 billion from Saudi Arabia and IDB’s Islamic Trade Finance Corporation (ITFC) on deferred payment has been in a transitory phase as Islamabad has made fresh requests for renewal of both facilities for another one year.

Both oil facilities on deferred payments completed first year upon maturity and now Islamabad is waiting for response on its request for extension of another year. The fate of Saudi Oil Facility (SOF) hangs in balance right at the moment.

The other day Saudi Arabia asked to pay back $1 billion from deposited money with the SBP and Islamabad was now waiting on formal response on fresh request for extension into oil facility on deferred payment for second year.

The oil facility from KSA was signed for three years during last year’s visit of Saudi crown prince and this facility was made operational from July 2019 with understanding that the first year bill would be paid on monthly basis and then second year oil would be obtained on deferred payment. So this whole facility would be ended on fourth year upon the maturity of getting oil for third year.

It was assessed that Pakistan required $275 million oil facility on monthly basis from the KSA so it accounted for $3.2 billion on per annum basis for three years period. Such facility was agreed upon for three years with possibility of rollover of second and then third year. The IDB’s ITFC facility was hovering around $1.5 billion on per annum basis.

It is simply an irony that out of $4.7 billion facility on deferred payment from both sides, Pakistan could hardly utilise only over 30 percent or $1.5 billion during the last fiscal year 2019-20. Pakistan utilised over $700 million from SOF and around $800 million from ITFC.

“The exchange rate variation, reduced oil prices and certain specific chemical used in crude oil made it hard for Islamabad to utilise whole oil facility from both sides,” said a top official dealing with this issue, and added that the government made efforts to finalise arrangements with private refineries but failed to do so because of various hitches.

The official said that said that Islamabad made request for provision of $500 million facility from ITFC and because of COVID-19 pandemic its approval got some extra time but it could be approved anytime in consultation with consortium of other Gulf banks. The government has estimated that ITFC facility could be utilised to the tune of $1 billion so after maturity of $500 million pending request then another $500 million request would be forwarded to ITFC during the current fiscal year.

Saudi Arabia and UAE had deposited $3 billion and $2 billion into SBP for providing support to Pakistan. Then KSA also provided $3.2 billion oil facility on deferred payment to jack up its assistance up to $6 billion.

However, both KSA and UAE did not allow Pakistan to utilise $5 billion lying into SBP for the purpose of budgetary support despite Islamabad requests.

When contacted, Finance Ministry spokesman and other relevant high-ups they replied that “The ITFC (IDB) facility is negotiated annually. The Economic Affairs Division (EAD) manages it. The Ministry of Finance has given clearance for this year’s facility. The ITFC is now arranging it. As for last year’s utilisation, the EAD will have the figures.”

To a query regarding SOF, he replied that the $3.2 billion per annum deferred oil facility agreement with Saudi Arabia was for one year (extendable). “The first year completed on July 09, 2020. Our request for an extension in the arrangement is under consideration with Saudi side,” he maintained.

When Dr Khaqan Najeeb was contacted for comments, who had played key role for finalising SOF and oil facility from ITFC as he was then serving as adviser to the Ministry of Finance, said that friendly countries have supported Pakistan’s increasing needs of external financing with direct deposits, oil on deferred payments and expediting commercial loans. In spite of this support, Pakistan has had to go to IMF, rely on multilateral financing both for projects and budgetary support and recently offer lucrative rates for short-term FX borrowing.

Dr Khaqan emphasised that international action of debt deferment and new debts will keep us afloat but national action will find us a cure for the economy. It is imperative to lower overall financing needs to contain the pace of external needs.

He mentioned that managing high fiscal deficit hovering around 9 percent for two years is the first step in this direction. Smartly managing an indigenous energy mix will also help.

He felt oil price drop has adversely affected oil exporters’ balance sheet. However our external needs have increased with external debt to GDP increasing from a low of 23.4 percent in 2007 to 28.6 percent.

Dr Khaqan said for Pakistan the real game-changer is move to reliance on non-debt flows of privatisation, hedging oil could potentially save billions in FX needs and increasing exports and remittances. This ensures external sector sustainability and economic sovereignty, he concluded.