Friendly Gulf states to provide $4b financing

Acting SBP chief says Qatar to provide $2b, Saudi Arabia $1b, UAE $1b over next one year

KARACHI:

Acting State Bank of Pakistan (SBP) Governor Murtaza Syed has said the friendly Gulf countries – Qatar, Saudi Arabia and UAE – have devised their strategies to cumulatively provide $4 billion financial support to Pakistan over the next one year.

“Qatar will provide a bilateral assistance worth $2 billion,” Syed was quoted as saying while briefing analysts after the announcement of the monetary policy on Monday. The statement came ahead of Prime Minister Shehbaz Sharif’s official visit to Qatar on Tuesday and Wednesday (today and tomorrow).

Besides Qatar, Syed said, Saudi Arabia would finance $1 billion through supplying petroleum products on deferred payments over the next 12 months. The United Arab Emirates (UAE) would invest $1 billion in Pakistan, Syed was quoted by an expert who attended the briefing.

Earlier, the federal government planned to give substantial shareholding to the UAE in the Pakistan International Airlines (PIA) and its Roosevelt Hotel in New York.

While announcing the latest monetary policy, the central bank left the key policy rate unchanged at 15% for the next seven weeks.

“Pakistan has successfully secured an additional $4 billion from friendly countries over and above its external financing needs in FY23,” the monetary policy statement (MPS) said. “As a result, FX (foreign exchange) reserves will be further augmented through the course of the year, helping to reduce external vulnerability.”

The MPS mentioned that the executive board of the International Monetary Fund (IMF) was scheduled to meet on August 29, 2022 and “is expected to release a further tranche of $1.2 billion, as well as catalysing financing from multilateral and bilateral lenders”.

The foreign currency inflows should also help stabilise the rupee, as additional inflows from friendly countries would increase supply of foreign currency compared to demand in the domestic economy.

While talking to corporate leaders at the Pakistan Stock Exchange (PSX) last week, Syed had said that Pakistan’s external financing requirements were not only fully met over the next 12 months in the wake of the revival of the IMF loan programme, but additional financing worth $4 billion from friendly countries would “over-finance” Pakistan.

“This will provide an additional boost to Pakistan’s FX reserves in FY23.”

Last week, Pakistan signed the letter of intent (LoI) with the IMF to get its extended $7 billion loan programme revived. In mid-July, the country achieved staff-level agreement with the leading global creditor. The IMF had conditioned revival of its loan programme to Pakistan acquiring additional financing guarantee worth $4 billion from friendly countries.

Besides, the Pakistan Muslim League-Nawaz (PML-N) led coalition government took tough decisions of withdrawing subsidy on petroleum products and started collecting petroleum development levy (PDL) on petroleum products to win back the loan programme.

Earlier, the prolonged delay in resumption of the IMF programme and political instability devalued domestic currency by 13.75% (or Rs31.31) to an all-time low of Rs240 against the dollar since mid of April. On Monday, the rupee closed at Rs216.66 to a dollar.