The United Arab Emirates (UAE) has rolled over $2 billion debt for one year amid central bank’s call to arrange more loans to stabilise foreign exchange reserves that depleted by one-fourth in just two weeks.
In addition to securing the rollover, the Pakistani authorities on Monday managed a statement from the International Monetary Fund (IMF) to calm the jittery markets that could further undermine the value of the rupee against the US dollar.
The UAE has rolled over $2 billion debt for one more year, Finance Secretary Hamid Yaqoob Sheikh told The Express Tribune on Monday. The facility had matured last month and Pakistan had sought a three-year extension.
The outgoing prime minister, Imran Khan, had requested the $6 billion facility in November 2018 but the UAE approved $2 billion for a period of three years that became effective in early 2019. It was the second major facility that a foreign country rescheduled in past 10 days.
Yet the foreign exchange reserves remained on a sliding path despite a major relief from China and the UAE.
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The Finance Ministry spokesman said that the UAE had not yet taken a decision on the rollover of another $450 million debt that matured few weeks ago. Pakistan had not paid back the $450 million debt, although Dubai had demanded its money back.
The foreign exchange reserves that were close to $15 billion till March 18th have already slid to around $11 billion, sources said. The $4 billion or over one-fourth reduction in the reserves within no time has panicked the central bank that is now seeking urgent foreign loans, the sources added.
They said the State Bank of Pakistan (SBP) and the Finance Ministry were discussing options to seek more foreign loans but had very little option in these circumstances.
The government had approached a consortium of foreign commercial banks for a $1 billion loan but the banks were demanding high interest rate, according to the sources. However, in the absence of political leadership, bureaucracy was reluctant to get the loan at higher rate, they added.
Pakistan and the IMF talks were derailed last month – for the third time in as many years -- after the outgoing Pakistan Tehreek-e-Insaf (PTI) government followed the path of fiscal indiscipline and violated its commitments given to the IMF.
The IMF has not yet permanently closed the doors for Pakistan and was willing to engage with the next government. “The Fund looks to continue its support to Pakistan and, once a new government is formed,” Esther Perez Ruiz, the resident representative of the IMF said
“We will engage on policies to promote macroeconomic stability, and enquire about intentions vis-a-vis programme engagement”, Ruiz added. To a question, Ruiz added that the IMF was willing to engage with any government, caretaker or the one formed after the general elections.
However, in July 2018, the Law Division had barred the then caretaker government from entering into a deal with the IMF on the grounds that the interim setup could not bind the country into a longer term contract.
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The IMF has not yet disbursed $3 billion out of the $6 billion and the revised scheduled for completion of the 7th review of the programme lapsed last month. The IMF resident representative said that there was no concept of suspension within IMF programmes.
The UAE decision to rollover its loans provided a breathing space to Pakistan, as the economic managers see some additional impact on the external sector due to political instability. The stock market shed over 1,250 points on Monday, as the country grapples with constitutional crisis.
Although China last month agreed to rollover $4.2 billion loan, the procedural formalities for the $2.2 billion commercial loan still remain incomplete.
The finance secretary said that Pakistan was expecting to receive the $2.2 billion from China this month, once all the procedural formalities were done, which would provide a cushion to the foreign exchange reserves.
In case of a delay coupled with higher current account deficit, it could be difficult to manage the situation, the sources said.
The Chinese assistance has helped the central bank to maintain the gross foreign exchange reserves in double digits but any further delay in receiving the promised money could create problems to manage expectations, the sources added.
Former planning minister Asad Umar said on Monday that the current external sector situation was difficult to manage for any government.
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