$3b deposit to prop up reserves, ease pressure on the rupee
Saudi Arabia has announced a $4.2 billion aid package to support Pakistan. Riyadh would make a $3 billion deposit with the State Bank of Pakistan (SBP) and offer an oil deferred payments facility of $1.2bn per annum, Federal Energy Minister Hammad Azhar has said.
The official Saudi Press Agency (SPA) also carried the announcement, which comes immediately after Prime Minister Imran visited Saudi Arabia and met with Suadi Crown Prince Mohammad Bin Salman.
The $3b Saudi deposit would help prop up Pakistan’s foreign reserves that dropped by $1.6b last week due to external debt repayments that included repayment of $1 billion against Pakistan International Sukuk.
Azhar said the Saudi aid package would “help ease pressures on our trade and forex accounts as a result of global commodities price surge.”
The rupee nosedived after the recent drop in the foreign reserves. The dollar rose to Rs176.2 on Tuesday, the highest ever in the history of the country. The rupee has lost 12% since early July when the dollar rate stood at Rs157.
The Saudi Development Fund has generously announced for Pakistan an oil deferred payments facility of $1.2bn/annum and a $3 bn deposit with SBP. This will help ease pressures on our trade & forex accounts as a result of global commodities price surge.— Hammad Azhar (@Hammad_Azhar) October 26, 2021
The money would be made available by the Saudi Fund for Development (SFD) under a “Royal Directive,” according to the SPA.
The SFD would “deposit an amount worth of US$3 billion into the State Bank of Pakistan to help the Pakistani government support its foreign currency reserves and support it in facing the impacts of the coronavirus pandemic,” the SPA said.
“In addition, the royal directive was issued to finance the oil derivatives trade with a total amount of US$1.2 billion throughout the year,” it added.
The SFD has underscored that the move was linked to close relations between Pakistan and Saudi Arabia.
It pointed out that “these royal directives confirm the Kingdom of Saudi Arabia’s ongoing stance in supporting the economy of the sisterly Republic of Pakistan.”
It is not the first time that Saudi Arabia would make a large deposit into the State Bank of Pakistan or offer an oil deferred payments facility.
The deferred payment facility began in 1998 when Pakistan faced international sanctions after the nuclear tests.
In 2014, Saudi Arabia deposited $1.5b into Pakistan’s Central Bank to help maintain the balance of payment.
After the PTI came to power in 2018, Saudi Arabia deposited $3b into the SBP. It also opened an oil deferred payment facility worth $3.2b per annum for three years. However, the facility was withdrawn abruptly after nine months in May 2020.
Saudi Arabia also withdrew $1b from the $3b it had deposited with the SBP. Pakistan had to secure a $1b loan from China to repay the Saudis.
The new Saudi package comes as talks between Pakistan and the International Monetary Fund (IMF) have stalled. Shuakat Tarin, the advisor to the PM on finance, returned from Washington last week without reaching an agreement.
Reports say the IMF has set stiffer conditions for the $1b loan tranche under the $6b programme for Pakistan. It demanded of the government to shut down accounts operated by various public sector entities in commercial banks.