Pakistan to borrow $4bn from Saudi backed bank

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

Pakistan to borrow $4bn from Saudi backed bank

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.