Riyadh provides ‘$4.2b’ lifeline to Islamabad

Second financial assistance package will help ease pressure on forex reserves

ISLAMABAD:

Saudi Arabia has agreed to provide a $4.2 billion lifeline to Pakistan on an annual basis in the shape of cash assistance and oil on deferred payments, Information Minister Fawad Chaudhry said on Tuesday.

“Saudi Arabia would deposit $3 billion cash in the State Bank of Pakistan and also provide $1.2 billion worth of oil on deferred payments,” said the information minister while talking to The Express Tribune.

It is the second financial assistance package that the kingdom has extended to Pakistan in the past three years, aiming to help the country manage a brewing external sector crisis. The kingdom had extended a similar package valuing at $6 billion in October 2018 to provide a breathing space to

Pakistan before the country went to the International Monetary Fund for an extended loan facility.
The latest development came a day after Prime Minister Imran Khan returned from a three-day trip to the kingdom.

A federal minister said that the Saudi government would charge interest rate that will be around the cost of debt taken from the international financial institutions. Last time, Saudi Arabia had charged about 3.2% interest rate on its $3 billion cash deposit.

Saudi Arabia has agreed to provide financial assistance to Pakistan at a time when the talks between the PTI-led coalition government and the IMF are facing a delay, resulting in holding up of the release of the next loan tranche amounting to $1 billion.

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It was not immediately clear whether the government has arranged funds from Saudi Arabia as an alternative to the IMF programme since it was not in need of cash assistance from a friendly country at this stage, as the country’s foreign exchange reserves stand at $17.5 billion.

Finance Adviser Shaukat Tarin and Energy Minister Hammad Azhar would today (Wednesday) address a news conference to share details of the deal.

The IMF talks were scheduled to conclude on October 15 and the delay has brought the rupee under pressure, besides contributing to depletion of the foreign exchange reserves.

The rupee on Tuesday nosedived to its lowest value of Rs175.27 against the US dollar. The foreign exchange reserves also dipped by $1.7 billion to $17.5 billion during the week ending October 15.

“This will help ease pressure on our trade and forex accounts as a result of global commodities price surge,” said Hammad Azhar, Federal Minister for Energy.

Pakistan had requested Saudi Arabia to provide oil on deferred payments for two years and the cash deposits for three years.

Saudi Press Agency also released a statement, saying that generous directive to deposit $3 billion with the State Bank of Pakistan will help the Pakistani government support its foreign exchange reserves in the face of fallout from the Corona pandemic.

At the time of signing of the $6 billion bailout package, the IMF had put a condition on Pakistan that it cannot return $14 billion assistance received from Saudi Arabia, the United Arab Emirates and China during the three years of the programme period. However, Saudi Arabia had withdrawn its money, which Pakistan returned after taking loans from China.

Read more: Govt asks IMF to relax Covid spending ceiling by $2b

The second bailout package from Saudi Arabia in three years affirm that the country could not stand on its feet during the past three years and does not have the capacity to absorb any shock, including termination of a deal with the IMF.

Prime Minister Imran Khan on Tuesday also spoke with Chinese President Xi which, according to Information Minister Fawad Chaudhry, was rare as the Chinese president hardly spoke to heads of the states and governments during the post-Covid period.

On October 1, Finance Adviser Shaukat Tarin had announced that a deal had been reached between Pakistan and Saudi Arabia for a $1.8 billion annual oil facility on deferred payments. But at that time no formal deal had been agreed.

Economic Affairs Minister Omar Ayub wrote a letter to Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan 10 days after Tarin said that a deal had been done for getting $150 million worth of oil on deferred payments every month. Ayub had raised the issue of seeking the facility to ease pressure on the foreign exchange reserves.

Pakistan also secured a $4.5 billion oil on deferred payments facility from the Islamic Development Bank. But there was some delay in making the $761.5 million financing agreement operational under the overall $4.5 billion framework. Sources said there were some procedural hiccups, which were holding back the facility.

When contacted, a spokesperson of the Economic Affairs Ministry said that during the current financial year, a Master Murabaha Financing Agreement for $761.5 million has been signed on October 21, 2021. “The financing is under process for effectiveness,” she added.

“The ITFC financing facility will be available for the import of oil, LNG by PSO, PARCO and Pakistan LNG Limited,” said the Economic Affairs Ministry spokesperson.

Pakistan’s oil imports surged to $4 billion during the first quarter of the current fiscal year -- up by almost 100% -- according to the State Bank of Pakistan. The finalisation of the facilities is expected to take pressure off the exchange rate.