Financing, urea sought from China
Due to the repayment of the Chinese loans, Pakistan’s gross official foreign exchange reserves slipped to $7.8 billion, hardly sufficient to cover one and a half month of imports. photo: REUTERS
Pakistan on Friday requested China to expedite the approval for refinancing a $500 million commercial loan and deliver an already approved 125,000 metric tonnes of urea at the earliest – two issues that explain the predicament of the country’s economy.
The requests were made by Finance Minister Ishaq Dar to the Ambassador of China, Nong Rong, who called upon Dar. The Special Assistant to the Prime Minister on Finance, Tariq Bajwa, secretary finance and other senior officers from the finance division also attended the meeting.
“During the lengthy meeting, both sides discussed outstanding issues that require progress to show tangible results from Prime Minister Shehbaz Sharif’s recent visit to Beijing,” an official told the Express Tribune.
Sources informed that the finance minister requested the Chinese ambassador to fast-track the refinancing of the $500 million loan from the Industrial and Commercial Bank of China (ICBC). This month, Pakistan paid back the same loan it is now asking China to refinance.
Due to the repayment of the Chinese loans, Pakistan’s gross official foreign exchange reserves slipped to $7.8 billion, hardly sufficient to cover one and half month of imports.
Pakistan is betting on the Chinese loan, along with a $500 million loan from the Asian Infrastructure Investment Bank (AIIB), to repay a $1 billion Sukuk bond next month.
The State Bank of Pakistan (SBP) Governor Jameel Ahmad said on Friday that Pakistan will pay back the $1 billion loan on December 2.
The country’s dependence on China and other creditors has deepened after a delay in loan approvals from the International Monetary Fund (IMF) and the World Bank.
According to the officials, “During the meeting, Dar also requested the Chinese embassy to fast-track the shipments of 125,000 metric tonnes of urea from China to Pakistan.”
The cabinet approved the procurement of the 125,000 metric tonnes of urea at a price of $480 per tonne but the deliveries were promised for January. Sources revealed, however, that Pakistan had requested the Chinese ambassador to help the country in quickly acquiring the requisite supplies of urea.
The country needs important agricultural input for the sowing of wheat and other crops, as it faces a challenge to narrow the gap between demand and supply. It is feared that if imports are not procured on a timely basis, there might be a shortage of urea next month.
On October 27, 2022, the ECC approved a proposal allowing the Trading Corporation of Pakistan (TCP) to proceed with the lowest offer received from M/s Makhdoom Logistics Services at the rate of $520 per metric tonne for the import of 300,000 metric tonnes of urea fertiliser. However, M/s Makhdoom defaulted on its obligations without paying any major penalty, as the TCP conveniently had only $500,000 as surety bond.
The ECC had also approved procurement of 35,000 metric tonnes of urea from Azerbaijan’s firm, M/s SOCAR, at the very exorbitant price of $685 per tonne, higher by 43% as compared to the Chinese deal.
The Ministry of Industries had informed the ECC that the prices offered by SOCAR were higher than the international market price as well as the price quoted by Chinese firms.
Pakistan finds the Chinese government-to-government path to be the most viable option to meet the shortfall in demand.
Details indicate that the minister for commerce observed that as the cultivation of wheat was in full swing, therefore, the availability of urea should be ensured for the crop in December 2022, thus backing a proposal to import urea from Azerbaijan.
It was stated that fresh tendering for the import of urea was a time-consuming process and TCP needed to urgently explore options by December. The TCP chairman further observed that if the urea supply was managed in December 2022, within the existing supply of local urea in the country, then procurement of the entire 300,000 metric tonnes of urea from the Chinese companies at the agreed rates for supply landing in January 2022 would be the best option.
However, in case there is no supply of urea, then the best option would be to procure urea from M/s SOCAR which was in a position to supply the same in December 2022 when the country will be in great need due to the incoming rabi season.
During the prime minister’s visit to China, the matter was also discussed with the Chinese side.
Published in The Express Tribune, November 26th, 2022.
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