Wednesday, November 29, 2023

Pakistan Receives $4.5 Billion to ease Oil and LNG Imports

Jeddah Based Islamic Trade Finance Corporation (ITFC) gives Pakistan $4.5 billion to cover the costs of importing crude oil, petroleum products, and liquefied natural gas (LNG).

ITFC is a member of the Islamic Development Bank Group and provides trade finance to member countries after pooling funds from financial institutions in the Middle East.

The ITFC financing would be used over three years (2021-23) by Pak-Arab Refinery Ltd (Parco), Pakistan State Oil (PSO), and Pakistan LNG Ltd (PLL) to import crude oil, refined petroleum products, and LNG and helps increase the country’s foreign currency reserves and provide resources to meet the oil import bill.

Pakistan’s oil import bill totaled around $10 billion in the first 11 months of the current fiscal year, but it has increased in recent months due to the upward trend in international oil prices. In the first 11 months, Pakistan imported around $2.5 billion in LNG and crude oil, in addition to $4.5 billion in refined petroleum products.

Pakistan last year signed a $1.1 billion trade finance facility for the current year, but it could not be fully utilized due to lower international oil prices, reduced demand in Pakistan, and refineries’ limitations on harnessing the Arab oil.

The sources said the ITFC had also committed in April 2018 to a similar funding line for Pakistan for 2018-20, but utilization ultimately could not exceed $3 billion as private refineries were unable to import oil under the installation as it was limited mainly to Parco and some PSO extension.

However, the financing cost for the next funding mechanism would be lower than the existing one, given the substantial excess liquidity of banks in the UAE and Saudi Arabia because of restricted commercial activities in the wake of the ongoing Covid-19 wave.

The ITFC had a limited portfolio of about $1 billion of its own and typically raised funds from other private financial institutions. Some of the other key recipients of the ITFC trade mechanism were Indonesia, Egypt, and Bangladesh.

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