Pakistan, China extend currency swap agreement

The SBP can purchase yuan from the PBOC against the rupee, and repurchase its local currency with the same yuan on a predetermined maturity date and exchange rate. (Shutterstock)
Updated 25 May 2018
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Pakistan, China extend currency swap agreement

  • The arrangement will ease pressure on dollar-based foreign exchange reserves while importing machinery for CPEC-related projects, say financial experts
  • The CSA amount has been increased from 10 billion yuan to 20 billion, and from 165 billion rupees to 351 billion

KARACHI: The State Bank of Pakistan (SBP) on Thursday said it has extended a currency swap arrangement (CSA) with the People’s Bank of China (PBOC) for three years in their respective local currencies.
The central banks also agreed to increase the CSA amount from 10 billion yuan ($1.56 billion) to 20 billion, and from 165 billion Pakistani rupees ($1.43 billion) to 351 billion. 
A CSA allows parties to exchange payments in one currency for equivalent amounts in the other to facilitate bilateral trade settlements, providing liquidity support to financial markets.
“The increase in the CSA amount reinforces the commitment of the two central banks to promote the usage of local currencies in bilateral trade and investment, and strengthen financial cooperation between the two countries,” the SBP said.
The CSA was signed on Dec. 23, 2011, to promote bilateral trade and finance direct investment between the two countries in their respective currencies.
Financial experts term this agreement and its continuation a big development, especially in the presence of the ongoing projects under the China-Pakistan Economic Corridor (CPEC).
“In the presence of CPEC (the China-Pakistan Economic Corridor), this is a huge development since it will ease the pressure on foreign exchange reserves needed for the import of machinery to undertake CPEC-related projects,” said Muzamil Aslam, senior economist and CEO of EFG-Hermes Pakistan.
Since the CSA is a bilateral financial transaction, all terms and conditions apply equally to both countries, and the pricing is based on standard market benchmarks, which are widely accepted in both domestic markets. Both banks will be able to draw on the swap line anytime during the tenure of the swap. 
The SBP can purchase yuan from the PBOC against the rupee, and repurchase its local currency with the same yuan on a predetermined maturity date and exchange rate.
Similarly, the PBOC can purchase rupees against the yuan, for which standard market pricing will apply. Pakistan’s foreign exchange reserves have plummeted to $16.6 billion. 
“The CSA will help Pakistan avert pressure on the US dollar since exports between Pakistan and China will take place in their local currencies,” Aslam told Arab News.
“It will also ease pressure on the current account deficit, as we will have to pay in Chinese currency instead of the dollar.”
Muhammad Sohail, senior financial expert and CEO of Topline Securities, said: “This is a short-term step to avert a major foreign exchange reserves crisis. Pakistan needs to seriously take measures to boost its exports and curtail its imports.”
This is the second CSA that the SBP has signed, the first one being with the Central Bank of Turkey on Nov. 1, 2011.


Can a hungry Mali turn rice technology into ‘white gold’?

Updated 20 October 2018
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Can a hungry Mali turn rice technology into ‘white gold’?

  • Malians are cautiously turning to a controversial farming technique to adapt to the effects of climate change
  • Dubbed the System of Rice Intensification (SRI), the new method was pioneered in Madagascar in 1983

BAGUINEDA: When rice farmers started producing yields nine times larger than normal in the Malian desert near the famed town of Timbuktu a decade ago, a passerby could have mistaken the crop for another desert mirage.
Rather, it was the result of an engineering feat that has left experts in this impoverished nation in awe — but one that has yet to spread widely through Mali’s farming community.
“We must redouble efforts to get political leaders on board,” said Djiguiba Kouyaté, a coordinator in Mali for German development agency GIZ.
With hunger a constant menace, Malians are cautiously turning to a controversial farming technique to adapt to the effects of climate change.

 

Dubbed the System of Rice Intensification (SRI), the new method was pioneered in Madagascar in 1983. It involves planting fewer seeds of traditional rice varieties and taking care of them following a strict regime.
Seedlings are transplanted at a very young age and spaced widely. Soil is enriched with organic matter, and must be kept moist, though the system uses less water than traditional rice farming.
Up to 20 million farmers now use SRI in 61 countries, including in nearby Sierra Leone, Senegal and Ivory Coast, said Norman Uphoff, of the SRI International Network and Resources Center at Cornell University in the US.
But, despite its success, the technique has been embraced with varying degrees of enthusiasm. Uphoff said that is because it competes with the improved hybrid and inbred rice varieties that agricultural corporations sell.
For Faliry Boly, who heads a rice-growing association, the prospect of rice becoming a “white gold” for Mali should spur on authorities and farmers to adopt rice intensification.
The method could increase yields while also offering a more environmentally-friendly alternative, including by replacing chemical fertilizers with organic ones, he said.
He also pointed out that rice intensification naturally lends itself to Mali’s largely arid climate.

FACTOID

Up to 20 million farmers now use rice intensification in 61 countries, including in nearby Sierra Leone, Senegal and Ivory Coast.