KARACHI: Saudi Arabia has provided a much-needed breathing space to Pakistan by announcing the rollover of $3 billion it had deposited in the State Bank.

“The Saudi Fund for Development (SFD) extended the term for the deposit provided by the Kingdom of Saudi Arabia in the amount of three billion dollars to the State Bank of Pakistan,” said a press release issued by the SBP on Friday.

The SFD has extended the term of deposit for one year. Bankers believe the government was willing to get an extension of up to three years, but the current political instability in the country may be a hindrance in the way of a long-term extension.

The extension in term of the deposit is a continuation of the support provided by Saudi Arabia to Pakistan, as it would boost foreign exchange reserves and help Pakistan fight the economic repercussions caused by the Covid-19 pandemic.

Kingdom extends term of $3bn deposit with SBP

The SBP said the extension would help Pakistan meet external sector challenges and achieve sustainable economic growth.

The agreement for the $3bn deposit was signed between the State Bank and the Saudi Fund for Development in November last year.

Pakistan has been facing growing economic challenges with sliding foreign exchange reserves, current account deficit, a depreciating currency and high inflation.

Saudi Arabia had deposited $3bn in State Bank at four per cent interest rate.

Neither the finance ministry nor State Bank provided any information about the rate of interest on the $3bn rollover. Since the interest rates even in the strong economies have been increased to combat inflation, financial experts believe that the rate of return on the $3bn deposit could be renegotiated.

The country’s foreign exchange reserves reduced to just $13.3bn from $22.3bn recorded in November 2021, a decline of about $9bn.

The State Bank’s foreign exchange reserves, which are particularly used for debt servicing, fell to $7.5bn from $15.96bn in November last year. It reflects a massive decline which drastically slashed the country’s ability to pay back dues regarding external account of the economy.

In fact, Pakistan’s own reserves are almost insignificant as China rolled over $2.3bn in June this year, out of its $6.3bn loans. Media reports suggest that Pakistan is seeking rollover of total $6.3bn. However, there is no concrete information available about the confirmation regarding the rollover of Chinese loans.

Sources in the financial sector say Pakistan is willing to pay commercial loans, but hopes to delay bilateral loans. The estimated Chinese loans to be paid by Pakistan stands at around $13bn.

Published in Dawn, December 3rd, 2022