Due to Pakistan’s economy being cash-strapped and its declining foreign exchange reserves, China has extended a $2 billion loan in State Administration Foreign Exchange (SAFE) deposits for another year.
“Three SAFE deposits have been rolled over by China. A $500 million initial deposit was due on June 27, 2022, a $500 million second deposit was due on June 29, 2022, and a $1 billion third deposit was due on July 23, 2022. $2 billion in SAFE deposits from China have been extended for a year, according to a senior finance official.
China has so far extended a total of a $4.3 billion loan, comprising $2.3 billion in commercial loans and now $2 billion in SAFE deposits, allowing Islamabad to cover the external financial deficit with a huge sum of $35.9 billion for the current fiscal year.
Once sufficient financing guarantees are secured, the IMF has highlighted the possibility of having a planned tentative Executive Board meeting by the end of this month.
Following the rise in the petroleum development fee on July 31, Esther Perez Ruiz, the IMF resident representative in Islamabad, stated that Pakistan has finished the preceding measures for the combined seventh and eighth reviews of the Extended Fund Facility. This indicated that the bailout will resume, boosting investor confidence in the ability to stabilize the economy.
The IMF did, however, condition the holding of its Executive Board meeting on Saudi Arabia and the United Arab Emirates agreeing to provide the anticipated $4 billion loan to the nation once the IMF delivers its tranche.
The IMF found a $4 billion funding shortfall that Pakistani authorities are expecting to be filled by friendly nations, namely Saudi Arabia, Qatar, and the United Arab Emirates, in order to meet the $35.9 billion in gross external finance requirements for the current fiscal year.
Saudi Arabia may disclose that the oil facility was increased by $1.2 billion in deferred payments, bringing the total cost of the oil facility to $2.4 billion.
The possibility of converting one billion Special Drawing Rights (SDRs) into US dollars for Islamabad is another topic of discussion between Pakistan and the IMF. But as it was only an option for which a mechanism would need to be developed, the conversion of the SDRs facility may take some time.
The UAE may express interest in acquiring shares in state-owned companies (SOEs), particularly in the oil and gas industry, but it will take some time for such business transactions to be completed.
Given that there are now ongoing discussions on this issue, it is possible that Qatar will soon offer gas and RLNG on a payment plan. Although it will take some time, selling the remaining RLNG power plants to a single friendly nation might bring in $2–3 billion for the country’s coffers.
During the week ended on 22-Jul-2022, the SBP’s reserves decreased by $754 million to $8.5 billion due to external debt and other payments.