Pakistan Development Fund: Reserves surge after injection of $750m

SBP tightlipped about donor countries.

ISLAMABAD:

Following a delay in loans by international financial institutions, the Pakistan Development Fund (PDF) has been boosted by an injection of $750 million by friendly nations. Sources close to the prime minister told The Express Tribune that the funds will provide relief to the economic team left high and dry by Pakistan’s chief international lenders and additional contributions are expected in the coming weeks.  

The Fund is the brainchild of Finance Minister Ishaq Dar, who played a key role in convincing these countries to contribute, according to sources. When the Pakistan Muslim League-Nawaz government took charge in June last year, the country verged on default, leaving the government no option but to sign a deal with the International Monetary Fund. Since then, sources say, the government has been in firefighting mode to manage the economy. The State Bank of Pakistan (SBP) did not comment on when the PDF was opened and which countries contributed the funds. It neither denied nor confirmed the existence of the Fund and officials from the ministry of finance similarly refused to go on the record about the PDF.

The injection of funds last month boosted the dwindling foreign currency reserves to $3.9 billion; there has been a subsequent gain in the rupee against the US dollar, with the exchange rate currently at Rs 103.5 to the dollar. The strengthening rupee has enabled prices of petroleum products to lower by 2 per cent last month, said Finance Minister Ishaq Dar while talking to The Express Tribune on Thursday. Dar had announced earlier that the government would take the gross official reserves to $10 billion by the end of March – what he had not disclosed was the negotiations underway to boost the reserves.

“The increase in the central bank’s reserves is attributed to receipts from multilateral and bilateral sources,” stated the SBP when asked about the sudden surge in official foreign currency reserves from $674 million to $3.9 billion within a week.

The gross official reserves currently stand at $8.73 billion, with $4.8 billion held by commercial banks. A third loan tranche of $550 million from the IMF is expected before the end of March, which will leave the reserves close to $10 billion.

In September last year, Pakistan entered into a $6.7 billion three-year IMF programme, hoping that other multilateral and bilateral lenders would match the assistance. The World Bank and the Asian Development Bank promised $1.5 billion by December 2013, a commitment that has yet to be fulfilled, sources said.

Pakistan requested an additional amount of $1.2 billion from the IMF after reserves remained dangerously low despite the bailout package – a request that was not entertained after the IMF did not get the green light from the United States, sources said.

Published in The Express Tribune, March 8^th, 2014.