KARACHI: The State Bank of Pakistan (SBP) has received second tranche of $1 billion from Saudi Arabia, which will support the country’s dwindling foreign exchange reserves.
The central bank confirmed on Friday that it has received $1bn from the kingdom as part of the promised $3bn package but no final figure of the total SBP reserves was available.
On Thursday, a press release issued by the SBP showed its reserves at $7.2bn during the week ended on Dec 7. Accounting for the latest inflow, the new figure should be around $8.2bn.
The first tranche of $3bn promised aid from Saudi Arabia landed on Nov 9, which pushed up the SBP dollar holdings to $8.062bn. The third and final instalment of $1bn is expected in January 2019.
During Prime Minister Imran Khan’s visit to Saudi Arabia for the Future Investment Initiative, the kingdom pledged $3bn in cash injections to support SBP’s foreign exchange reserves, which have continuously been falling.
However, the Saudi deposit was not to be used for debt servicing or any other foreign obligations. Moreover, another $3bn was promised for deferred oil payments by the Saudi government.
The huge current account deficit — about $18bn in FY18 — has been haunting the PTI government right after taking over forcing Imran Khan to seek support from friendly countries to bridge this gap. It’s also exploring an International Monetary Fund bailout, having held a series of meetings with the Fund officials. IMF decision regarding approving loan to Pakistan is expected by mid-January.
However, the government has so far been unable to restrict the steep fall of foreign exchange reserves while depreciating the local currency in order to bring down the trade gap — the primary driver behind the massive current account deficit.
Right after PTI won July 25 elections, dollar slipped back to Rs118, from Rs125 on positive market sentiments but then fell back to Rs122. Since then, the rupee has been devalued around 14 per cent in multiple attempts.
Finance Minister Asad Umar believes the rupee depreciation would make imported items costlier, thus reducing trade deficit. The government has made several announcements to woo foreign investments such as one-window operation or direct connection with PM House to facilitate investors.
However, all these efforts have so far failed to yield desired result. While remittances jumped 12pc in 5MFY19 and current account deficit declined by $232 million to $4.84bn in 4MFY19, there was no positive in terms of foreign direct investments.
Published in Dawn, December 15th, 2018