Saudi Fund, SBP sign $3bln deposit agreement

KARACHI: The State Bank of Pakistan on Monday signed an agreement for a deposit of $3 billion from Saudi Fund for Development (SFD) that will help boost the country’s foreign currency reserves.

“Under this deposit agreement, SFD shall place a deposit of #3.0 billion with SBP,” the central bank said in a statement The agreement was signed between the Sultan Bin Abdul Rahman Al-Marshad, chief executive officer SFD and Dr Reza Baqir, governor SBP.

“The deposit amount under the agreement shall become part of SBP’s foreign exchange reserves. It will help support Pakistan’s foreign currency reserves and contribute towards resolving the adverse effects of the Covid-19 pandemic,” the SBP said. Last month, Saudi Arabia pledged a $4.2 billion financial support package for Pakistan. This included $3 billion cash deposits to bolster Pakistan’s foreign reserves and provide funding of deferred oil supply for $1.2 billion.

The government will pay 4 percent mark up on the cash deposits, according to the terms agreed between the two countries. The expected disbursement from Saudi Arabia will boost Pakistan’s forex reserves to $25.77 billion,. These inflows are also expected to ease off the pressure on the rupee.

The country’s reserves dropped last week by $777 million or 3.3 percent to $22.7 billion, their lowest since April 2021. Reserves held by the central bank fell by 4 percent or 691 million to $16.3 billion, the lowest level since June 25.

The SBP’s reserves are enough to cover around three months of imports. In 2018, Saudi Arabia gave $3 billion in foreign currency support and a further loan worth up to $3 billion in deferred payments for oil imports to support Pakistan’s balance of payments. The likely increase in the forex reserves could cushion the external current account. The current account deficit reached $1.7 billion in October. It was in the surplus of $448 million a year ago.

High current account deficit amid surging imports and the increasing foreign debt repayments have contributed to the decline in the forex reserves. The country’s external debt and liabilities (outstanding) increased by $4.8 billion to $127 billion at the end of September this year. The government obtained $3.8 billion in gross foreign loans in the July-October period of 2021/22 the fiscal year 2021-22, up 18 percent from a year earlier, according to the Ministry of Economic Affairs.

Pakistan, which only recently averted a balance-of-payments crisis, has also reached a deal with the International Monetary Fund for reviving a $6 billion bailout program, which is crucial to boost its forex pile.