Pakistan to borrow $4bn from Saudi backed bank

Updated 10 August 2018
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Pakistan to borrow $4bn from Saudi backed bank

  • Pakistan needs IMF program despite $4 billion IDB loan offer, experts
  • Pakistan immediately needs $12 billion to stabilize economy marred by external imbalance

KARACHI: In spite of a $4 billion loan offer from Saudi-backed Islamic Development Bank and $2 billion from China, Pakistan needs International Monetary Fund (IMF) assistance to “discipline” its structural system, financial experts have warned.
“Pakistan plans to borrow more than $4 billion from the Saudi-backed Islamic Development Bank (IDB) as part of its attempts to restore dangerously low stocks of foreign currency,” the Financial Times reported on Thursday. The British financial newspaper added: ”Two officials have told the Financial Times that the Jeddah-based bank has agreed to make a formal offer to lend Islamabad the money when Imran Khan takes over as prime minister. The paperwork is all in place. IDB is waiting for the elected government to take charge before giving their approval.”
Asad Umar, Pakistan’s Finance Minister-in-waiting, declined to comment before it was possible to make an official statement. However, he told Arab News: “The news may be correct.” 
“It is good start,” said Dr. Salman Shah, former Finance minister of Pakistan. “But the country still needs IMF assistance because the program comes with a discipline Pakistan needs as the country faces structural problems of productivity and competitiveness which needs to be tamed,” Dr. Shah told Arab News.
“This amount will certainly help in providing breathing space for taking decisions to avail IMF funding or not. IMF has about $6 billion left from Pakistan’s SDR (Special Drawing Rights) Quota, given the outstanding loan of more than $6 billion”, Dr. Ikram-ul-Haq, a senior economist, told Arab News.
However, Dr. Haq has said it would be better for Pakistan to implement structural reforms without the IMF program.
“Better to go for structural reforms on the fiscal, monetary and trade fronts to restore the viability and sustainability of our external transactions. We need to go for substantial fiscal deficit reduction to restrain the level of aggregate demand and put less pressure on imports and the current account deficit,” he added.
Dr. Haq added: “The Ministry of Finance expects a fall in net external borrowing from more than $7 billion in 2017-2018 to about $4.5 billion in the current fiscal year. Part of this decline is due to the maturity of a bond of $1 billion early in 2019, higher amortization of commercial loans and smaller floatation of Sukuk/Euro bond. Given the likely private investment and other inflows, the total financing available for meeting the current account deficit would not be more than $8.5 billion.”
In the backdrop of the burgeoning current account deficit, Pakistan immediately needs up to $12 billion to stabilize the external payment system, at least in the short term. Pakistan’s current account deficit by the end of June 2018 had swelled to $18 billion, not enough to cover imports for even two months.
“IDB oil facility will help relieve some pressure on Pakistan’s foreign exchange reserves, but considering a financing gap of $26 billion in 2018-19, reliance on other funding is a must,” said Muhammad Sohail, CEO of Topline Securities.
In a recent interview with reporters in Islamabad, Asad Umar termed the economic situation as “one of the worst in country’s history,” and did not rule out IMF loans.
“Pakistanis (are) not to expect short-term miracles. The country faces growing pressure on its balance of payments,” he said.


India names Modi demonetization backer as cenbank head

Visitors are seen standing next to a logo of the Reserve Bank of India (RBI) at the bank's head office in Mumbai on December 5, 2018. (AFP)
Updated 12 December 2018
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India names Modi demonetization backer as cenbank head

  • Das — a high-profile backer of Modi’s controversial 2016 move to scrap high-value currency notes, known as demonetization

MUMBAI: Ex-finance ministry official Shaktikanta Das took charge of the Reserve Bank of India on Tuesday, in a swift appointment expected to ease a dispute with the government as it pushes for looser credit rules ahead of a general election.
The announcement by Prime Minister Narendra Modi’s administration came just a day after Urjit Patel resigned from the post, following months of clashes between the two institutions over lending curbs and how to deploy the central bank’s surplus reserves.
Pressure on the RBI to take immediate steps to boost the economy, including a transfer of the excess reserves to the government, could well rise after Modi’s ruling Bharatiya Janata Party (BJP) suffered likely election losses in three key states on Tuesday.
Das — a high-profile backer of Modi’s controversial 2016 move to scrap high-value currency notes, known as demonetization — will serve a three-year term as governor, effective immediately.
RBI watchers said they expected the 61-year-old, who retired last year as secretary of the department of economic affairs having previously served on the RBI’s board, to put relations between the Mumbai-based bank and the finance ministry in New Delhi on a stabler footing.
Investors will also look closely at his ability to hold up against outside influences after recent efforts by the Modi government to gain greater control over the central bank’s regulatory powers.
“The incoming governor will have to work hard to prove that he has his own independent mind,” said Deepak Jasani, head of retail research at Hdfc Securities.
Investors said any openly political appointee with little macro-economic experience, would not sit well with financial markets that already sold off following the BJP’s election setbacks.
But Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai, said he expected India’s debt and currency markets to react positively.
“He is a bureaucrat...We expect the RBI to take a pragmatic approach under him, be pro-growth and change its stance going ahead given that inflation has come off sharply,” he said.
Finance Minister Arun Jaitley told Reuters partner ANI that the government acknowledged the bank’s independence.
“Government will fully support the RBI and coordinate with it in areas where consultations of government are required to make sure India’s economy benefits from both government policy decisions and areas which fall within domain of the RBI,” ANI tweeted, quoting Jaitley.

SWIFT APPOINTMENT
Pronab Sen, India’s former chief statistician, said he was surprised by the speed of Das’s appointment.
“If you have a situation where a position as important as the governor of the RBI is filled within 24 hours of the resignation of the incumbent, that will raise eyebrows,” Sen told Reuters.
“People are going to say, clearly this guy had already been identified. And, the situation was created where Urjit Patel had to quit.”
Das — widely seen as a contender for the top RBI job after Raghuram Rajan’s term ended in 2016 — did not answer calls from Reuters to his mobile phone.
RBI officials who have worked with him closely said Das was likely to be more inclusive in the decision-making process than Patel.
“He has a balanced approach and is good at consensus building,” said a former deputy governor. .”..We have had our fair share of differences. But he has always been solution-centric rather than festering on those differences.”
Das worked in the finance ministry under both Modi’s government and the previous coalition led by the main opposition Congress party and was also involved in drafting the Insolvency and Bankruptcy code aimed at protecting small investors.
He came under fire for his pro-demonetization stance and was the most vocal bureaucrat at the time Modi withdrew the high-value bank notes to fight tax evasion.
Das last year criticized the methodology of global rating agencies and sought a sovereign rating upgrade for India.