Friendly Gulf States to provide $4 billion in funding
Acting Governor of the State Bank of Pakistan (SBP), Murtaza Syed, said that friendly Gulf countries – Qatar, Saudi Arabia and the United Arab Emirates – have drawn up their strategies to provide financial support accumulated $4 billion in Pakistan over the next year.
“Qatar will provide bilateral aid worth $2 billion,” Syed said during a briefing to analysts after the monetary policy announcement on Monday. The statement came ahead of Prime Minister Shehbaz Sharif’s official visit to Qatar on Tuesday and Wednesday (today and tomorrow).
Besides Qatar, Syed said, Saudi Arabia would finance $1 billion by supplying petroleum products with deferred payments over the next 12 months. The United Arab Emirates (UAE) would invest $1 billion in Pakistan, Syed told an expert who attended the briefing.
Previously, the federal government had planned to give the UAE a substantial stake in Pakistan International Airlines (PIA) and its Roosevelt Hotel in New York.
When announcing the latest monetary policy, the central bank left the key rate unchanged at 15% for the next seven weeks.
“Pakistan has managed to secure an additional $4 billion from friendly countries in addition to its external financing needs in FY23,” the Monetary Policy Statement (MPS) says. “As a result, foreign exchange (currency) reserves will be further increased during the year, helping to reduce external vulnerability.”
The MPS mentioned that the Executive Board of the International Monetary Fund (IMF) was due to meet on August 29, 2022 and “is expected to release a further tranche of $1.2 billion, as well as catalyze funding from multilateral and bilateral lenders” .
Foreign currency inflows should also help stabilize the rupee, as additional inflows from friendly countries would increase the supply of foreign currency relative to demand in the domestic economy.
Speaking with business leaders at the Pakistan Stock Exchange (PSX) last week, Syed said that not only will Pakistan’s external financing needs be fully met over the next 12 months following the revival of the IMF loan program, but that additional financing worth $4 billion from friendly countries would “overfinance” Pakistan.
“This will give an additional boost to Pakistan’s foreign exchange reserves in FY23.”
Last week, Pakistan signed the Letter of Intent (LoI) with the IMF to restart its $7 billion extended lending program. In mid-July, the country reached a services-level agreement with the world’s largest creditor. The IMF had made the resumption of its loan program in Pakistan conditional on the acquisition of an additional financing guarantee worth $4 billion from friendly countries.
In addition, the Pakistan Muslim League-Nawaz (PML-N)-led coalition government has made tough decisions to withdraw subsidies on petroleum products and has started to levy a Petroleum Development Royalty (PDL) on petroleum products. to recover the loan program.
Earlier, the prolonged delay in resuming the IMF program and political instability devalued the national currency by 13.75% (or 31.31 rupees) to an all-time low of 240 rupees against the dollar since mid- april. On Monday, the rupee closed at Rs216.66 per dollar.