Saudi Arabia transfers $3bn to Pakistan bank, rupee regains
ISLAMABAD: Saudi Arabia has agreed to revive its financial support to Pakistan, including about $3 billion in safe deposits and $1.2bn to $1.5bn worth of oil supplies on deferred payments.
An agreement to this effect was reached during the visit of Prime Minister Imran Khan to the kingdom this week. However, a formal announcement would be made by PM’s adviser on finance and revenue Shaukat Tarin and Energy Minister Hammad Azhar on Wednesday at a news conference.
Prime Minister Imran Khan on Tuesday expressed gratitude to Saudi Arabia’s Crown Prince Mohammad bin Salman bin Abdulaziz for extending financial support to Pakistan. The prime minister in particular mentioned the $3 bilion deposit with the State Bank of Pakistan and the $1.2 bilion financing of the refined petroleum products. “I want to thank HRH Prince Mohammad bin Salman for supporting Pakistan with $3 bln as deposit in Pak’s central bank & financing refined petroleum product with $1.2 bln,” he wrote on his twitter handle.
Imran Khan said the Kingdom of Saudi Arabia had always helped Pakistan in difficult times. “KSA has always been there for Pak in our difficult times including now when world confronts rising commodity prices,” he said. The two leaders had met this week in Saudi Arabia on the sidelines of Middle East Green Initiative summit on Climate Change.
According to the Saudi Press Agency – SPA, the Saudi Fund for Development in a “generous gesture” announced a deposit of US 3 bln dollars with the State Bank of Pakistan to help the government support its foreign currency reserves and counter the impact of the Corona pandemic. The SPA reported that the deposit was in addition, to an oil deferred payment facility of US 1.2 billion dollars for petroleum products, during the year.
Press conference of Shaukat Tarin and Hammad Azhar
Advisor to Prime Minister on Finance and Revenue, Shaukat Tarin on Wednesday said that Saudi Arabia has transferred partial amount out of the total $4.2 billion, it had announced for Pakistan to overcome its balance of payment and oil financing.
“Yesterday I received call from finance minister of the Kingdom, who told me that we are going to release the money right now… for your information, and I think some amount was released yesterday,” he said.
Addressing a press conference along with Federal Minister for Energy, Hammad Azhar, the advisor said that US$3 billion would be placed with the State Bank of Pakistan to help balance of payments and $1.2 billion would be provided as oil supplies on deferred payment.
The minister said that the Crown Prince of Saudi Arabia had told him that Pakistan and Prime Minister Imran Khan hold special place for the Kingdom, so he (Crown Prince) was pleased to do this. He said that the Saudi Finance Minister also telephoned him on Tuesday and informed him about the support. The advisor said that some of the amount had already been released on Tuesday. He informed that the rate of interest on the loan would be 3.2 percent.
Talking about the inflation, the advisor said that oil prices in Pakistan were the lowest as compared to other countries, including regional ones, except the oil producing countries.
He said, keeping in view the purchasing power parity, Pakistan was one of the cheapest countries in the world. He said, although income was low, the prices of commodities were also low as compared to the other counties of the world.
The Minister categorically denied having any link between the Saudi Arabia’s this extended facility and International Monetary Fund (IMF) programme.
He said that talks with IMF were nearing successful completion and assured that within couple of days the programme would be finalized. He said that the agreement had already been made before he flew from Washington.
He said that with the $4.2 bln Saudi Arabian Facility and upcoming agreement with the IMF would have positive impact on market, so there should be no uncertainty.
Meanwhile, speaking on the occasion, Federal Minister for Energy, Hammad Azhar informed the reporters that the inflation was a global phenomenon as the whole world was passing through commodity cycle. Owing to Covid-19, almost all the countries gave stimulus packages which had paced up economy at a time when production was hit by shutdowns to prevent Coronavirus, he added.
So every country, irrespective of being poor or rich, witnessed hike in commodity prices, he remarked. He also pointed out that oil prices in Pakistan were low, except the oil producing countries, whereas the gas prices were not increased since 2019, which have gone up by five to ten-fold in European countries.
Likewise, he added prices of Urea fertilizer were low whereas the government had to provide Rs 450 billion tax relaxations to lower the burden of increasing oil prices in international marker.
He expected that the world commodity cycle would break within around 6 months and the prices in world market would come down leaving positive impact on inflation in Pakistan.
On Financial Action Task Force (FATF), he said that Pakistan has made tremendous progress on two simultaneous plans. He said, the country had completed 26 out of 27 action points of earlier plan and majority of the FATF members had expressed satisfaction made over the remaining one point.
Likewise, out of 7 points of FATF June plan 4 have been completed, which he said was history in FATF to have completed 50 percent of action plan in first review.
Rupee regains 2.27 in intraday trade
The currency market bounced back on Wednesday to gain Rs2.27 against the US dollar in intra-day trading in the inter-bank market after Saudi Arabia announced a support package of $4.2 billion for Pakistan, traders and bankers said.
The Saudi money will help shore up the country’s foreign reserves, which have been shrinking.The dollar was being quoted at Rs173.00/173.11 around midday. On Tuesday, it was being traded at a record Rs175.27 in the inter-bank market. The local currency has depreciated around 13.6 per cent since May.
“Rupee appreciation is [the] result of the Saudi funding announcement, widely seen as a positive surprise much needed to bolster the external account,” Saad Hashemy, executive director at BMA Capital, told Reuters.
Asad Rizvi, former treasury head at the Chase Manhattan Bank, said: “Saudi Arabia agreed to provide $1.2bn oil on deferred payment and cash deposit of $3bn, while the REER index fell for the fourth consecutive month to hit 95.9 which supports a stronger PKR. And with IMF money in the pipeline, the rupee should take a breather.”
Saudi Arabia on Tuesday agreed to revive its financial support to Pakistan, including about $3bn in safe deposits and $1.2bn to $1.5bn worth of oil supplies on deferred payments, Information Minister Fawad Chaudhry announced.
Pakistan has been in talks with the International Monetary Fund for the last two weeks to secure a $1 billion tranche, but its sixth review remained inconclusive.