Depletion of foreign currency reserves: Pakistan to seek additional package of $3.2bn from Saudi Arabia

ISLAMABAD: Pakistan has decided to seek an additional package of $3.2 billion from Saudi Arabia for jacking up the total facility to $7.4 billion from the existing $4.2 billion during the ongoing visit of Prime Minister Shehbaz Sharif, in order to avert further depletion of foreign currency reserves.

“We are going to request the Kingdom of Saudi Arabia to increase the deposits amount from $3 billion to $5 billion and double the Saudi Oil Facility (SOF) from $1.2 billion to $2.4 billion, so the total package could be increased up to $7.4 billion during the visit of premier Shehbaz Sharif,” top official sources confirmed while talking to The News on Wednesday.

When one of the top officials of the Finance Division was contacted and inquired about the proposed package from Saudi Arabia, he replied: “We are requesting for deferred payment facility and enhancing the credit extended for forex support." However, the top official showed reluctance to share further information about the exact details to be requested by PM Shehbaz Sharif before the KSA authorities, especially in his meeting with Saudi Crown Prince Mohammad Bin Salman and other top dignitaries.

Pakistan will also make a request to the Kingdom of Saudi Arabia for rollover of the existing package of $4.2 billion for one year till June 2023 in order to align it with the IMF programme as Islamabad has already asked the Fund to extend the existing Extended Fund Facility (EFF) for nine months till June 2023 coupled with increasing the size of the programme from $6 billion to $8 billion.

Saudi Arabia had already given $3 billion deposits to the State Bank of Pakistan and an oil facility on deferred payment worth $1.2 billion during the tenure of the last PTI-led regime. The deposits were given in December 2021, while the Saudi Oil Facility (SOF) started in March 2022 and so far, $100 million were disbursed.

Saudi Arabia had placed stringent conditions with the last package amount of $4.2 billion and linked it to the IMF programme.

The IMF programme is expected to be revived till end of June 2022 if all things settled, as Islamabad requires a breathing space for three months period.

According to the estimates calculated by Dr Hafiz A Pasha, Pakistan requires $12 billion injection in order to avert the balance of payment crisis and further depletion of the foreign currency reserves. Pakistan will have to seek rollover of $4.3 billion from China, including $2.3 billion commercial loans and remaining $2 billion deposits. It is also expected that Prime Minister Shehbaz Sharif will also visit China next month to muster the required support from the friendly country.

Pakistan’s foreign currency reserves held by the State Bank of Pakistan depleted rapidly by $5.5 billion in the last six weeks period and stand at $10.8 billion now. Any further depletion of the foreign reserves could put the country into a crisis mode, so the government was making all-out efforts to get bridge financing from the friendly country to avoid decrease in the foreign currency reserves till the time of reviving the stalled IMF programme.

Pakistan and the IMF had already kick-started number crunching by sharing data and now the IMF review mission was expected to start parleys from the mid of May 2022 for accomplishing the pending Seventh Review and release of the next tranche of $960 million.