Saudi Arabia deposited $2 billion in the State Bank of Pakistan (SBP), according to Finance Minister Ishaq Dar, just days after Islamabad reached a staff-level agreement with the International Monetary Fund (IMF) on a $3 billion Stand-By Arrangement.
“SBP has received a deposit of $2 billion from the Kingdom of Saudi Arabia,” Dar said at a press conference, adding that the inflow has increased the central bank’s forex reserves, which will be reflected in the forex reserves for the week ending July 14.
The inflows occurred after Islamabad signed a short-term IMF agreement on June 30 under a standby arrangement that will disburse $3 billion over a nine-month period, subject to approval by the IMF’s board of directors, which meets on July 12.
Multilateral and bilateral funds were a major impediment to Pakistan’s IMF agreement, which was stalled for more than nine months and eventually expired.
The SBA has now given the country some breathing room by averting a sovereign default and assisting the government in streamlining fiscal policies.
With sky-high inflation and foreign exchange reserves barely enough for a month’s worth of controlled imports, analysts believe Pakistan’s economic crisis could have escalated into a debt default if the IMF bailout had not been provided.
Dar, speaking on behalf of Prime Minister Shehbaz Sharif, thanked Chief of Army Staff General Asim Munir for his assistance to the government, and praised Saudi rulers for being “true brothers.”
“In the coming days, I believe that there will be more positive developments on the economic front […] we have reached stability,” the finance minister said.
After the IMF deal, Fitch credit rating agency Monday — after almost a year — upgraded Pakistan’s long-term foreign currency issuer default rating to CCC from CCC-.
Fitch said in a statement the upgrade reflected the country’s improved external liquidity and funding conditions following a SLA with the IMF, but warned that the fiscal deficit still remained wide.
With the IMF deal in place, Pakistan can now unlock other external financing.
In the plan sent to the lender, sources in the Finance Division said that Pakistan arranged $3.5 billion in bilateral funds from China, $2 billion from Saudi Arabia, and $1 from the United Arab Emirates.
On the multilateral side, Pakistan aims to secure $500 million from Asian Development Bank, $500 million from World Bank, and $3 billion from the IMF.
Fitch said local authorities expect $25 billion in gross new external financing in FY24, against $15 billion in public debt maturities, including $1 billion in bonds and $3.6 billion to multilateral creditors.
The South Asian nation has seen also seen severe political uncertainty since former prime minister Imran Khan was ousted through a no-confidence motion in April last year.
In a bid to ensure that the programme’s measures are implemented in the lead-up to the elections due in October, the lender’s team met all mainstream political parties to seek support and consensus for the SBA.
Khan’s Pakistan Tehreek-e-Insaf said he gave his support for the deal.
