KARACHI: The State Bank of Pakistan on Saturday said it has received $3 billion from the Saudi Fund for Development to keep the US dollars in its account to enhance its foreign reserves.
Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin also announced that the SBP had received Saudi Arabia’s $3bn deposit. “Good news, $3bn Saudi deposit received by SBP. I want to thank His Excellency Crown Prince Mohammed Bin Salman and [the] kingdom of Saudi Arabia for the kind gesture,” he tweeted.
Pakistan received the Saudi fund after its negotiations with the International Monetary Fund in Washington for resumption of loans succeeded. The country received $3bn within a week after signing an agreement with the SFD on Nov 29 following Prime Minister Imran Khan’s visit to the Kingdom in October.
Much-needed boost for SBP, which has seen reserves decline by $4bn in three months
It was agreed that Saudi Arabia would also provide $1.2bn worth of oil supplies to Pakistan on deferred payments.
However, the government is tight-lipped over the terms and conditions of the agreement, triggering speculations that it is in favour of the lending country.
When approached to know the conditions, the SBP replied: “As per agreement all terms are confidential and cannot be revealed without the consent of both the parties.”
Analysts were particularly critical about the suspected condition of withdrawal of $3bn within three days, which can destabilize the balance of payments anytime. Also, rate of return was not disclosed by the government as analysts speculate higher returns compared to prevailing rates in the international markets.
Foreign exchange reserves of the SBP lost over $4bn within three months, which is alarming since the imports payments have gone beyond expectation. The SBP reserves fell from $20.074bn in August to $16.010bn on November 26.
The unexpected 162 per cent rise of trade deficit in November jolted both the government and the currency market reflecting the unavoidable high dollar demand for imports. The trade deficit reached $5.107bn in November against $1.946bn in the same month of last fiscal year.
The first five months of the current fiscal year witnessed 117.25pc trade deficit as it rose to $20.746bn compared to $9.549bn of the same months of last financial year.
The massive trade deficit has created a serious threat to current account balance that has already entered a crucial state. The current account deficit in four months of FY22 was over $5bn against a surplus of $1.3bn of last year. The reverse situation has created a panic-like situation in the currency market as the day-to-day devaluation of local currency compelled importers to book more for the future imports. The SBP has the target to keep the current account deficit at 2 to 3 per cent of GDP in FY22 while it has already crossed the target in first quarter with 4.2 per cent of GDP.
The government expects to receive $1bn from the IMF while it will raise about $1bn by launching Sukuk bonds in the international market. The country needs more inflows but both the foreign direct investment and remittances declined in October.
The domestic Bonds like treasury bills and Pakistan Investment Bonds could not attract foreign investment during FY22 while the inflows in Roshan Digital Account also have slowed down.
Published in Dawn, December 5th, 2021