Economy

Pakistan wants a $1.5bn increase in Saudi loans

• Financial assistance to help close the external financing gap needed for the pending IMF package
• Additional funding is expected to come in the form of a bilateral trade loan or SAFE deposit
• Committee headed by Aurangzeb formed to discuss with Chinese authorities, energy sector investors

ISLAMABAD: Pakistan has reportedly asked Saudi Arabia to increase its loan by about $1.5 billion from its existing portfolio of $5bn to help close the external financing gap needed for the payment package of The 37-month IMF is still awaiting the approval of its board.

As a rule, all three friendly partners of the two countries – Saudi Arabia, China and the UAE – must confirm to the IMF, through their senior managers, their loans of $ 12bn loan to Pakistan, the sources said. informed said.

Separately, the government has now announced a committee headed by the finance minister that included Energy Minister Awais Leghari and State Minister Ali Pervez Malik, among others, to continue discussions with Chinese authorities and investors and energy sector supporters. a Chinese financial consulting firm.

The government officially confirmed last month that it has begun the process of rehabilitating debts and debts of more than $27bn in these three friendly countries. The reprofiling or rollover of $12bn is a requirement imposed by the IMF under the $7bn Extended Fund Facility.

Islamabad has also asked Beijing to provide more than $15bn in power sector loans and convert foreign coal-based projects to domestic coal to create financial space due to timely repayment problems and facilitate the flow of foreign currency and consumer payments.

Currently, Saudi Arabia has the largest exposure to Pakistan at $5bn, followed by China’s $4bn and the UAE’s $3bn. According to sources, Pakistan has requested an additional $1.5bn from Riyadh, which is expected to come in the form of a bilateral trade loan, although it may also be in the form of a SAFE deposit.

Sources said that Saudi Finance Minister Mohammed Al-Jadaan had assured his counterpart of additional support, but the “process” was taking time for the confirmation to reach the IMF’s executive board.

Under the 37-month loan program, the IMF has handled Pakistan’s foreign exchange needs wise in a year and Finance Minister Muhammad Aurangzeb was expecting a speedy confirmation according to his communications with ministers. of the currencies of China, Saudi and UAE. With these assurances, he was repeatedly talking about the approval of the IMF board in the last week of August, but it was updated little by little until September.

On his return from China on July 28, the Finance Minister said that his three allies have pledged their support to put Pakistan in a better position in terms of external financing.

“I can assure you that we are in a very good place for foreign investment for the next three years, including the first, second and third year,” he said. However, this will still happen. Officials now admit that while funding for the second and third years would not be a problem, funding for the first year to close the gap was taking time.

Therefore, Mr. Aurangzeb and his team have already reached at least three commercial banks in the UAE and additional support from Saudi Arabia, despite announcements from Western banks, although there are Uncomfortable interest rates due to the political and macroeconomic environment and the still unsupportive credit situation.

The finance minister held talks with the group heads of Mashreq Bank and Dubai Islamic Bank over the past two days and spoke to the Saudi finance minister last week.

The official said Pakistan will have to ensure a favorable environment with better credit ratings and Saudi support before signing term papers with foreign banks for commercial loans. It is reported that these banks have shown the willingness of $300-350 million each of the loan for the current financial year, to be tied to the sukuk bonds in the next financial year.

The Finance Ministry initially expected the two countries’ lenders to quickly pass $12bn in annual debt over three to five years to get IMF board approval for its bailout. $7bn economy by the end of August. Now, he expects the approval of the IMF board in September.

For the current financial year, Pakistan has set aside about $20bn for foreign borrowing in the budget, apart from another $3bn from the UAE which is reported separately for the balance of payments.

With this massive loan, Pakistan’s reserves are estimated to grow to $19 to $20bn by the end of the current fiscal year.

Of the $20bn budget, about $4bn is also planned to be arranged through foreign trade loans during the current financial year, and another $1bn will be raised through international bonds .

Published in Dawn, August 24, 2024

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