Saudi Arabia’s $4.2 billion loan facility to ease off exchange rate pressure

ISLAMABAD: The Saudi Fund for Development will deposit $3.2 billion in the account of the State Bank of Pakistan (SBP) to help the country ease off pressure on the exchange rate and balance-of-payments position, a senior official said on Wednesday.

Adviser to the Prime Minister on Finance Shaukat Tarin said that Saudi Arabia will also provide $1.2 billion worth of oil on deferred payment.

In a joint press conference with Federal Minister for Energy Hammad Azhar, Tarin said that phenomenal increase in oil and other commodity prices put immense pressure on the exchange rate and created inflationary pressures, which the government is finding difficult to cope with.

In the international market too, the prices of commodities have almost tripled in the last one year. “In the given circumstances, this Saudi facility of $4.2 billion is a blessing,” he said, adding that the government has to pay 3.2 per cent markup on the Saudi loan.

Saudi Arabia has also agreed to provide $100 million worth of petroleum products monthly on deferred payments, he said.

Regarding the negotiations with the International Monetary Fund (IMF), the adviser said the IMF programme will be restored soon.

He dispelled the impression that he left Washington without finalising the talks with the IMF officials. “The talks with [the] IMF remained very positive and apart from one or two issues, all the matters have been resolved,” he added.

Tarin clarified that the prime minister wanted him in Saudi Arabia to finalise the Saudi deal and that is why he left without concluding the talks with the IMF.

However, he said, before leaving all the major issues were settled. In the budget, the government allocation for the petroleum development levy was Rs600 billion, which the government will not be able to collect because of high oil prices in the international market.

He said the government in the first quarter of this fiscal year exceeded its revenue target by Rs175 billion, which offsets the revenue shortfall likely to incur on account of PDL. The IMF emphasis was on the primary fiscal deficit, which they want to remain in control.

Tarin also indicated that to overcome the revenue shortfall, the government might withdraw the tax exemptions given to certain sectors.

Hammad Azhar said that inflation is not just confined to Pakistan; in fact, it is a global phenomenon. Food prices in the international market increased by almost three times, he said, adding that the petroleum prices in the country are still the lowest in the region, whereas the government didn’t increase the gas prices for the last two years.

In the international market, urea price per bag is $7,000 to $8,000, whereas in Pakistan, the price is Rs1,800/bag, he said, adding that the government had already passed on the tax relief of Rs450 billion to the consumers.

Regarding the Financial Action Task Force (FATF) decision to keep Pakistan in the grey list, Azhar said that of the 27 conditions, Pakistan has met 26. Even on the 27th condition many member countries believed that Pakistan fulfilled this, as well but a few countries raised some objections, which will be addressed soon.

The minister said FATF in June this year gave another list of seven items on money laundering. Of these, Pakistan met four in one go, which is a record.

Azhar said that the remaining of the three conditions will also be met soon. He expressed optimism that soon Pakistan will be out of the grey list.