Amid high inflation, a widening current account deficit, and dwindling foreign reserves, a $3 billion deposit made by Saudi Arabia in Pakistan’s foreign reserves comes as welcome news. The amount has been deposited for one year under a support package at a 4 percent interest rate.
A $1.2 billion oil loan facility, agreed during Prime Minister Imran Khan’s visit to Saudi Arabia last month, would also be included in the support package.
The development comes a week after Pakistan finally reached an agreement on terms to revive the stalled $6 billion funding from the International Monetary Fund (IMF).
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Glimmer of Hope
Seen as a much-needed respite during a desperate time in the country’s history where a combination of unfortunate events has battered the economy. The amount from the Saudi Kingdom would help shore up the country’s foreign reserves and help ameliorate the effects of the Covid-19 pandemic on the economy.
On Monday, the State Bank of Pakistan (SBP) had announced, from its official Twitter handle, the signing of the agreement with the Saudi Fund for Development (SFD) representing the Kingdom.
The agreement was signed by Sultan Bin AbdulRahman Al-Marshad, CEO, SDF, and Dr. Reza Baqir, Governor, SBP. The tweet also considered the gesture a testament to the strong and special economic ties between the two brotherly nations.
The country’s Minister of Finance, Shaukat Tarin, announced the good news today of money being received under the aforementioned agreement in a tweet from his official Twitter handle. The minister showed his appreciation for the Kingdom of Saudi Arabia’s kind gesture while sending personal thanks to His Excellency, Crown Prince Mohammed Bin Salman.
Good news, US$3 billion Saudi deposit received by SBP. I want to thank His Excellency Crown Prince Mohammed Bin Salman and Kingdom of Saudi Arabia for the kind gesture.
— Shaukat Tarin (@shaukat_tarin) December 4, 2021
A combination of factors including increasing foreign debt repayments, a high current account deficit, and increasing imports have contributed to the country’s declining foreign exchange reserves. Only last week, the country’s foreign reserves had dropped by a whopping 3.3 percent or $777 million to reach their lowest of $22.7 billion since April 2021.
The latest deposit by the Saudis is set to provide temporary relief to Pakistan’s foreign exchange reserves, but it remains to be seen if it would stabilize the falling rupee against the dollar.