KARACHI: Pakistan and Saudi Arabia this week agreed to put into operation at the “earliest” a $1.2 billion Saudi facility allowing Islamabad to defer payments for oil imports that economic experts hope will help stave off a current accounts crisis.
The $4.2 billion Saudi support package, which included a $1.2 billion oil loan facility, was agreed during Prime Minister Imran Khan’s visit to Riyadh in October last year. In December, Pakistan received the $3 billion loan but the oil facility is yet to be put into use.
On Thursday, Saudi envoy to Islamabad Nawaf bin Said Al-Malki and Pakistani federal minister for economic affairs Omar Ayub Khan met to discuss the oil loan facility.
“During the meeting, it was agreed to operationalize the Saudi Oil Facility at the earliest,” a statement issued from the Pakistan side said.
Saudi envoy to Islamabad Nawaf bin Said Al-Malki (left) calls on Pakistani federal minister for economic affairs Omar Ayub Khan in Islamabad, Pakistan, on February 4, 2022. (@eadgop/Twitter)
The financing agreement for the oil facility was signed last November between the Saudi Fund for Development (SFD) and the Economic Affairs Division (EAD) of Pakistan.
“As per Financing Agreement, the SFD will extend financing facility up to $ 100 million per month for one-year for purchase of petroleum products on deferred payment basis,” the statement added.
Pakistan is currently facing growing economic challenges, with high inflation, sliding forex reserves, a widening current account deficit and a depreciating currency.
Pakistan’s current foreign reserves declined to $22 billion, including $15.7 billion held by the central bank until the week that ended on January 28, 2022, according to central bank data.
Economic experts hope the early operationalization of the Saudi oil facility will help improve the country’s “external payment position.”
“Operationalizing this facility would help Pakistan to contain an increase in its current account deficit (CAD),” said Dr. Abid Qaiyum Suleri, a member of Pakistan’s Economic Advisory Council. “This would in turn help retain foreign exchange reserves. The result would be improvement in CAD and a stable rupee.”
The decision on the early operationalization of the oil loan comes as the International Monetary Fund said this week its Executive Board had approved a $1 billion disbursement to Pakistan after completing a sixth review of the country’s reforms under its $6 billion loan program.
The disbursement brings Pakistan’s total draw against the Extended Fund Facility program for budget support to about $3 billion. The program was initially approved in July 2019.
The IMF said the program had strengthened Pakistan’s fiscal buffers before the start of the COVID-19 pandemic, and a strong economic recovery has taken hold since the summer of 2020.
But it warned that a widening current account deficit and currency depreciation had reinforced domestic price pressures.
Pakistan’s GDP growth is expected to reach 4 percent this year, but its economy remains vulnerable to flare-ups of COVID-19, tighter international financial conditions, a rise in geopolitical tensions and delayed implementations of structural reforms, the IMF said.
