Tuesday, October 4, 2022

Pakistan to ask for an additional $3.2 bn from Saudi Arabia as foreign reserves run out

Pakistan has agreed to request an additional package of $3.2 billion from Saudi Arabia during the current visit of Prime Minister Shehbaz Sharif in order to increase the total facility to $7.4 billion from the present $4.2 billion, in order to avoid further depletion of foreign currency reserves.

Visiting Saudi Arabia at the invitation of Crown Prince Mohamed bin Salman bin Abdulaziz, Pakistani Prime Minister Muhammad Shehbaz Sharif will begin his three-day visit there today (Thursday).

The top official sources confirmed that they would request the Kingdom of Saudi Arabia to increase the amount of the deposit from $3 billion to $5 billion and double the Saudi Oil Facility (SOF) from $1.2 billion to $2.4 billion, allowing the total package to be increased up to $7.4 billion during the visit of Prime Minister Shehbaz Sharif.

When one of the Finance Division’s top officials was approached and asked about the planned package from Saudi Arabia, he responded in the following way: “We are requesting a deferred payment facility as well as a credit extension for forex support.”

However, the top source expressed reluctance to provide additional information regarding the specific details that Prime Minister Shehbaz Sharif will be requesting from the Saudi authorities, particularly during his meeting with Saudi Crown Prince Mohammad Bin Salman and other high-ranking officials.

Pakistan will also request from the Kingdom of Saudi Arabia a one-year extension of the existing $4.2 billion packages until June 2023 in order to bring it into line with the IMF program.

Islamabad has already requested from the IMF an extension of the existing Extended Fund Facility (EFF) for nine months until June 2023 as well as an increase in the size of the program from $6 billion to $8 billion in order to bring it into line with the IMF program.

In the previous PTI-led administration, Saudi Arabia had previously provided the State Bank of Pakistan with $3 billion in deposits and an oil facility on deferred payment worth $1.2 billion. The deposits were made in December 2021, and the Saudi Oil Facility (SOF) began in March 2022, with a total of $100 million having been distributed.

Saudi Arabia had attached rigorous conditions to the previous package, which had a value of $4.2 billion and was related to the IMF’s program.

Assuming that all other issues are resolved, the IMF program is expected to be extended to the end of June 2022, as Islamabad demands a three-month interval of breathing.

To avoid a balance of payment crisis and further depletion of the country’s foreign currency reserves, Dr. Hafiz A Pasha’s calculations suggest that Pakistan requires a $12 billion injection of foreign investment. A total of $4.3 billion in Chinese loans and deposits, including $2.3 billion in commercial loans and the remaining $2 billion in deposits, will have to be repaid by Pakistan. PM Shehbaz Sharif is also likely to travel to China later this month in order to get the necessary backing from the friendly nation.

Pakistan’s foreign currency reserves, which are kept by the State Bank of Pakistan, have been significantly depleted in recent weeks, falling by $5.5 billion in the last six weeks to $10.8 billion. Any further depletion of the country’s foreign reserves would put the country into crisis mode, so the government was making all-out efforts to obtain bridge financing from a friendly country in order to prevent further depletion of the country’s foreign currency reserves until the IMF program, which had been halted, could be restarted.

As a result of data exchange, Pakistan and the IMF have already begun the figure crunching process, and the IMF review mission is slated to begin discussions in the middle of May 2022 in order to complete the pending Seventh Review and issue the next tranche of $960 million.

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