KARACHI: Saudi Arabia has rolled over the $3 billion deposit facility for another year to support the State Bank of Pakistan’s (SBP) foreign exchange reserves which may fall to below $4bn in case the amount is withdrawn.

“On behalf of the Kingdom of Saudi Arabia, the Saudi Fund for Development (SFD) has extended the term of the $3bn deposit maturing on Dec 5 for another year,” the SBP announced on social media platform X, formerly Twitter.

“The extension of the deposit term is a continuation of the support provided by Saudi Arabia to Pakistan, which will help to maintain the foreign exchange reserves and contribute to the economic growth of the country,” said the central bank in a statement.

The SBP’s foreign exchange reserves dipped by $1bn after reaching a peak of $8.1bn in July. Pakistan’s external account has been facing a tough time for the last many years but the previous fiscal year was the worst when the SBP’s forex holdings plunged below $3bn in February.

The reserves increased after the first tranche of $1.2bn under the IMF’s nine-month $3bn Stand-By Arrangement was released in July. The UAE and Saudi Arabia also placed deposits in SBP accounts to help build its forex reserves.

The SBP said that the $3bn deposit agreement was initially signed through the SFD with the SBP in 2021 and rolled over subsequently in 2022, after the issuance of the royal directives that reflect the continuation of the close relationship between the two countries.

Caretaker Prime Minister Anwaarul Haq Kakar was currently on a visit to UAE where Pakistan and the United Arab Emirates (UAE) signed several memoranda of understanding paving the way for multi-billion dollar investments in diverse initiatives outlined by the Special Investment Facilitation Council (SIFC).

The visit was apparently in the wake of serious criticism over the formation of SIFC which failed to attract foreign investment. In early September, Mr Kakar had said that UAE and Saudi Arabia would make investments of $50bn ($25bn each) in the next three to five years.

The MoUs with the UAE cover investment cooperation across various sectors, including energy, port operations, wastewater treatment, food security, logistics, mining, aviation, and banking and financial services. The agreements aim to foster collaboration and stimulate significant investments in these key areas, a handout released by the Media Wing of the Prime Minister’s Office said.

World Bank Vice-President for South Asia Martin Raiser said on Tuesday that the SIFC cannot be a substitute for the underlying problems hindering foreign investment. He suggested improving the investment environment.

On Sept 4, Mr Kakar said Pakistan’s untapped mineral deposits are conservatively valued at about $6 trillion. Pakistan is trying to bring Saudi and UAE investment for Reko Diq which has a large amount of gold, copper and other minerals.

It is generally believed that political uncertainty and increasing terrorism in Balochistan and KPK would not help the government enough to achieve the ambitious target of foreign investment.

Published in Dawn, November 30th, 2023

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