KARACHI: The State Bank of Pakistan (SBP) on Tuesday signed an agreement with Abu Dhabi Fund for Development (ADFD) for $3 billion to be deposited in the SBP account.

The announcement came from the Foreign Office in a Twitter post at 8:30pm which added that the funds “will help Pakistan achieve financial stability and overcome economic challenges.”

SBP Chief Spokesperson Abid Qamar, talking to Dawn separately, confirmed the development and said the central bank will release details possibly on Wednesday. He expects the amount to arrive in the country within a week but no final details were available.

The agreement was signed between SBP Governor Tariq Bajwa and ADFD Director General Saif Al Suwaidi at the latter’s headquarters in Abu Dhabi.

“If $3bn is placed in the SBP account, the amount could be utilised for foreign exchange payments,” Qamar told Dawn. “But the central bank will not transfer local currency equal to this $3bn to the government account.”

He explained that funds in rupee equivalent from a foreign currency loan are directly transferred into the account of the government after the foreign exchange is received in the SBP account.

Pakistan has been facing an acute shortage of foreign exchange and the situation is more serious in the wake of high current account deficit which widened to $7.98bn in the first half of the current fiscal year. The SBP reserves had fallen to $6.9bn on Jan 11 from $12.793bn in Jan 2018.

Pakistan signed a similar agreement with Saudi Arabia for foreign currency deposits of which $2bn has been received while the last tranche of $1bn was still is still awaited.

Along with these inflows, the government hopes to get loans from Beijing. It was also reported in media that the country could borrow from Chinese banks on commercial rates.

The UAE is the second largest trade partner of the country, after China. During July-December FY19, the imports from UAE were $5.119bn and $8.901bn in full fiscal year 2018. However, exports to the kingdom were extremely low, at $636m during the first half and $1.379bn in FY18.

Pakistan’s external sector has been under stress for more than two years now but latest data from December 2018 show a possible turnaround. The current deficit shrank, albeit marginally, on the back of strong remittance growth and flat growth in the trade deficit.

Published in Dawn, January 23rd, 2019