- SFD on behalf of Saudi Arabia extended, says SBP.
- The deposit will help maintain Pakistan’s foreign exchange reserves.
- $3 billion deposit agreement initially signed with SBP in 2021.
In a major development for the struggling economy, Saudi Arabia has extended the term of its $3 billion deposit with the State Bank of Pakistan (SBP) for another year.
“The Saudi Arabian Development Fund (SFD) on behalf of the Kingdom of Saudi Arabia has extended the term of its US$3 billion deposit due December 5, 2023 for one more year,” SBP said in a statement on Wednesday.
The extension of the deposit term is a continuation of the kingdom’s support to Pakistan, which will help preserve Pakistan’s foreign exchange reserves and contribute to the country’s economic development, the statement added.
“The conversion of $3 billion is an important move to ensure Pakistan’s estimated gross financing needs of $25 billion for FY-24,” said former Finance Ministry adviser Khaqan Najeeb. Geo.tv.
He said the extension in the deposit period would help stabilize the current IMF program as the IMF sought confirmation from lenders and friendly countries on their commitments to Pakistan.
In addition, the analyst said the conversion would pave the way for IMF Executive Board approval for the second tranche of the $700 million loan.
The $3 billion deposit agreement was initially signed through the SFD with the SBP in 2021 and then converted to 2022, following the issuance of “royal instructions reflecting the continued close relationship between the two sister countries.”
Pakistan’s economy is in dire straits with its foreign exchange reserves quickly depleting amid fewer inflows from foreign investors. Analysts also see the Pakistani rupee falling to 350 by the end of 2024, as the local unit is set to end this year as the worst-performing currency.
The country was on the brink of bankruptcy last year, but was averted after the International Monetary Fund (IMF) approved a short-term bailout on strict terms — pushing up inflation as Pakistan underwent several structural reforms, which saw an increase in natural gas. energy and gasoline prices.
Foreign exchange reserves held by the central bank fell by $217 million to $7.180 billion in the week ended November 17, the SBP said, noting that commercial banks’ reserves also fell to $5.122 billion – taking the country’s total reserves to $12.302 billion.
The SBP attributed the decline in reserves to debt repayment in its weekly statement. Pakistan is facing a difficult external financing situation as it has to repay about $5 billion in foreign debt in the remaining months of the current fiscal year.
However, the expected financing from the IMF, bilateral and other multilateral partners should support the country’s foreign exchange reserves.
Pakistan expects to secure a $700 million tranche from the existing IMF loan program after the completion of the first assessment. The IMF’s executive board is expected to approve the staff-level agreement with Pakistan on the first review of the $3 billion stand-by arrangement early next month.
Pakistan is expected to receive about $1.2 billion in financing from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank before the end of the year. The government is also expecting more inflows from friendly nations to support the country’s economy.
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