Imran Khan Government has not been able to secure $3.2 billion oil on deferred payments facility from the United Arab Emirates (UAE). This failure will again burden the foreign currency reserves that have so far been maintained with the help of friendly nations.
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“Most probably, the UAE oil facility agreement will not materialise,” Finance Minister Asad Umar on Wednesday confirmed to Tribune. But he hastily added that the government has made alternative arrangements to meet its external financing needs for this fiscal year.
The reasons for the cancellation of the $3.2 billion oil facility by the UAE could not be immediately ascertained. Last month, the UAE had also postponed a scheduled meeting of the Joint Ministerial Commission.
The $3.2 billion oil facility was part of the $6.2 billion that the UAE had announced to give to Pakistan in December to help the country passing through difficult economic times. The UAE has already transferred $2 billion cash into the coffers of the State Bank of Pakistan (SBP) and another $1 billion was expected very soon.
During the visit of UAE crown prince, Pakistani authorities had hoped that the crown prince would announce the $3.2 billion credit oil facility following the same model of Saudi Arabia. Later on, the February deadline was given that was also missed.
It will be a setback for the Finance Ministry that had declared fully bridging the financing gap on the back of $14.5 billion financial support from the UAE, Saudi Arabia and China. So far, only Saudi Arabia has given $3 billion in cash and its oil facility on deferred payments has also been finalised.
The development came amid a delay in finalisation of an agreement with the International Monetary Fund (IMF). The negotiations with the IMF are continued since October last year. Two ($2) billion dollar loans are also expected from China next week, said the Finance Ministry that tried to downplay the cancellation of $3.2 billion UAE oil facility.
The $3.2 billion UAE oil facility was expected to take the pressure off from the foreign exchange market besides stabilising the official foreign currency reserves. Pakistan arranged $3 billion cash from Saudi Arabia at 3.2% interest rate. The UAE cash support has been secured for a period of two years at an interest rate of 3%, according to a written reply that Asad Umar submitted in the Senate last week.
The official foreign currency reserves stood at $8.1 billion as of end of last week that is inclusive of Saudi Arabian, Chinese and UAE cash assistance.
“The International Islamic Trade Finance Corporation (ITFC) deferred facility has already been operationalised, which will offset any impact of a delay or non-availability of the UAE facility,” said Dr Khaqan Najeeb, adviser and spokesperson of the Ministry of Finance. He said the government has worked diligently to ensure that $1 billion of the ITFC will be utilised in this fiscal year.
The spokesperson said $3.2 billion Saudi oil deferred facility was being operationalised and all relevant agreements were in place. In addition, adequate financing was in place for current fiscal year and beyond, said Dr Najeeb.
The government continues to follow a multipronged strategy to ensure continued stability in the country’s balance of payment (BOP) position. The strategy has included attracting more foreign direct investment, sale of assets and bilateral and multilateral flows, said Dr Khaqan Najeeb.
He said as part of this strategy, all the maturing short-term commercial loans have either been refinanced or rolled over, which will help keep the pressure off from the reserves. It is assumed that the country’s net foreign exchange reserves are negative by close to $10 billion.
Asad Umar on Wednesday did not disclose the exact figures of Net International Reserves (NIR) held by the SBP. While responding to a question during a meeting of the National Assembly Standing Committee on Finance, the finance minister said when the Pakistan Tehreek-e-Insaf (PTI) government came into power, “We were effectively at default stage but I will not share further details.”
To a question about slow disbursement from multilateral creditors especially from the World Bank, Umar said the delay in disbursement was an issue but measures have been taken to address the root causes. He said the policy loans from international creditors were suspended from the period of the last regime because of insufficient foreign currency reserves.
The Finance Ministry spokesman said the government has also launched Pakistan Banao Certificate, a first ever retail offering to Pakistanis abroad that will help raise money for balance of support. He said the government is also working on diversifying its investor base through issuance of a Panda bond.
Pakistan and the IMF negotiations remain inconclusive despite the urgency due to lack of external financing in the next fiscal year, starting from July.
Asad Umar said the IMF is demanding free float of exchange rate but the government wants to move ahead towards this objective in a phased manner. “The timing and pace of adjustments on flexible exchange rate was a matter of difference but now the differences have narrowed down,” he said.
The minister said increasing inflationary pressures is a big worry for the government as stabilisation under the IMF programme would require adjustments. He feared that the people will have to go through the pain as a result of these adjustments.
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