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.


Time to tear down Mideast trade barriers, Davos panel hears

Updated 23 January 2019
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Time to tear down Mideast trade barriers, Davos panel hears

  • Mohammad Al-Tuwaijri, Saudi minister of economy and planning, said a move to ease movement of traffic across the border could be followed elsewhere
  • Majid Al Futtaim CEO Alain Bejjani: Now there’s this seriousness between Saudi Arabia and the UAE, I hope it gets to frictionless trade

DAVOS: Amid global trade wars and the rise of protectionism, Middle East economic and business leaders on Tuesday issued a clarion call for the exact opposite: To ease customs restrictions in the region.
A panel at Davos heard how an agreement between Saudi Arabia and the UAE to boost cooperation — including the reduction of obstacles to trade across the shared border — could be a blueprint for the wider region.
Mohammad Al-Tuwaijri, Saudi minister of economy and planning, said a move to ease movement of traffic across the border — partly through the use of technology — could be followed elsewhere. “We want to establish a reference for others to follow,” he said.
Alain Bejjani, CEO of retail and leisure group Majid Al Futtaim, said “frictionless trade” would give the region a boost.
“Now there’s this seriousness between Saudi Arabia and the UAE, I hope it gets to frictionless trade,” he told Arab News on the sidelines of the Davos forum.
Bejjani declined to say whether that would involve a customs union, a common market or a common currency. Given the imposition of trade tariffs between the US and China, and the rise of Brexit, globalization — something espoused by many Davos delegates — is seen as on the wane.
But Bejjani said breaking down barriers in the Middle East could help it better compete with Western Europe and the US.
“For the past almost century now… we’ve been ingeniously working on making sure we put barriers across the Arab world. The reality is we have a market that’s as big as most of the largest markets in the world… if we’re smart enough to work together,” he told the Davos panel.
Khalid Al-Rumaihi, chief executive of the Bahrain Economic Development Board, agreed that Saudi-UAE cooperation was “a great template” for others to follow.
Aside from “opening up” Middle East markets, Al-Rumaihi said harmonizing regulation in the region would also be beneficial to businesses and entrepreneurs.
“If the rules are changing in each country, if they’re not harmonized, it’s very difficult… for an entrepreneur (to understand) the regulatory environment. So they don’t scale very quickly, and that’s something we need to solve,” he said. Talk of freer trade within the Middle East is especially relevant when it comes to the Palestinian territories, which are subject to Israeli occupation and blockade.
Palestinian Prime Minister Rami Hamdallah said freer movement and a reduction of duties would help the economy grow.
“We need to see our products being waived (of) customs,” he said. “We need mobility — we’re under occupation.”