KARACHI: Pakistan on Monday received the much-awaited first tranche of $1 billion from Saudi Arabia under the balance of payments support, the State Bank of Pakistan (SBP) confirmed.
“Yes, the central bank received $1 billion from Saudi Arabia today in order to support the country’s external balance of payments,” Abid Qamar, a spokesman for SBP, told Arab News.
According to the central bank, Pakistan’s foreign exchange reserves were $7.4 billion on Nov. 9, 2018; however, with the inflow of the first tranche, reserves have increased to about $8.4 billion.
Pakistan which has been facing a $12 billion external financing gap secured a $6 billion bailout package from Saudi Arabia, $3 billion in foreign currency support and $3 billion worth of oil in deferred payments. This assistance came as a result of the visit to the Kingdom by Prime Minister Imran Khan last month.
The bailout package consists of $3 billion in cash deposits and another $3 billion for oil imports on deferred payments for one year. The deferred payment oil import will begin in December 2018.
Pakistan’s Finance Minister Asad Umar on Saturday said that the country would receive the second and third tranche during the next two months.
Since assuming office in August this year, the Prime Minister Imran Khan has visited Saudi Arabia twice and the Pakistani leadership terms the trips "very successful"; they resulted in enhanced and multi-faceted economic cooperation between the two countries.
Prime Minister Imran Khan and his economic team are also involved in talks with China for financial backing and earlier this month, the prime minister visited China.
“The country is now out of the balance of payment crisis,” Finance Minister Asad Umar announced during a press conference held to brief the press about the PM's visit to China.
Economists termed the inflow of the first tranche of the Saudi bailout package a welcome step that would start improving the balance of payments situation. “The first installment of a package worth $6 billion is going to improve the balance of payment situation in addition to improving foreign exchange reserve conditions of the country and it will also reduce pressure on the Pakistani rupee,” Dr. Ikram ul Haq, an expert on economic and taxation matters, told Arab News.
“Pakistan has been facing a severe balance of payment crisis, due to rising imports and shrinking exports; it needs at least $12 billion for this year alone. It is thus clear that support from Saudi Arabia and other friendly countries, though a timely relief, will be neither sufficient nor a permanent, long-term solution,” he said.
Pakistan is also negotiating with the International Monetary Fund (IMF) for another loan to meet its economic challenges. Though the exact amount of the IMF loan has not been agreed upon, the finance minister last week said that the country may need a $5 billion to $6 billion bailout from the fund.
“Even after the IMF loan, Pakistan will require some solid measures, in the short, medium and long-term to keep its foreign exchange reserves in a healthy position. At the moment there is nothing on paper to this effect,” Dr. Haq said.
Dispelling the prevailing impression in Pakistan that IMF conditions would be less harsh if the country manages to secure funds from other sources, including friendly countries, and opts for less from the fund, Dr. Ayub Mehar, research economist at Asian Development Bank Institute, said: “The IMF loan framework is not linked to the loan amount but is instead linked to the conditions of the country’s economy. It does not make any difference if the loan amount is smaller or larger,” he added.
