• Funding to help bridge external financing gap needed for pending IMF package
• Additional funds expected to come in form of bilateral commercial loan or in SAFE deposit
• Aurangzeb-led committee formed to negotiate with Chinese authorities, energy sector investors

ISLAMABAD: Pakis­tan has reportedly requested Saudi Arabia to increase its lending by about $1.5 billion from its existing $5bn portfolio to help bridge the external financing gap needed for the IMF’s 37-month bailout package pending its executive board approval.

As a practice, all three friendly bilateral partners — Saudi Arabia, China and the UAE — must confirm to the IMF, through their executive directors, their $12bn loan rollovers to Pakistan, informed sources said.

Separately, the government has now notified a finance minister-led committee that also included Power Minister Awais Leghari and Minister of State Ali Pervez Malik, among others, for taking the negotiation process forward with Chinese authorities and energy sector investors and sponsors with the assistance of a Chinese financial advisory firm.

The government officially confirmed last month that it had started the process for the reprofiling of more than $27bn debt and liabilities with these three friendly countries. The reprofiling or rollover of $12bn is a prerequisite set by the IMF under the $7bn Extended Fund Facility.

Islamabad has also requested Beijing to reprofile more than $15bn energy sector liabilities and convert imported coal-based projects to local coal to create fiscal space in view of difficulties in timely repayments and ease energy sector foreign exchange outflows and consumer tariffs.

At present, Saudi Arabia has $5bn exposure to Pakistan, followed by China’s $4bn and UAE’s $3bn. According to sources, Pakistan has requested an additional $1.5bn from Riyadh, which is expected to come in the form of a bilateral commercial loan, though it could also be in the form of a SAFE deposit.

The sources said that Saudi Finance Minister Mohammed Al-Jadaan had assured his counterpart of additional support but “the process” was taking time for the confirmation to reach IMF’s executive board.

Under the 37-month loan programme, the IMF has worked out Pakistan’s year-wise foreign exch­ange requirements and Finance Minister Muhammad Aurangzeb had been expecting quick rollover confirmations based on his contacts with the Chinese, Saudi and UAE finance ministers. With these assurances, he had been repeatedly talking about IMF board app­ro­val in the last week of August, only to be revised tentatively to September.

On his return from China on July 28, the finance minister said that his three counterparts had assured their support to place Pakistan at a very comfortable position in terms of the external financing gap.

“I can assure you we are at a very good place on external financing for the next three years, including year one, year two and year three,” he said. This, however, has yet to materialise. The authorities now concede that while financing for the second and third years would not be a problem, financing for year one to bridge the gap was taking time.

Therefore, Mr Aurang­zeb and his team are now reaching out to at least three commercial banks in the UAE and additional support from Saudi Arabia, even though a couple of offers from Western banks were on the table, albeit with uncomfortable interest rates in view of prevailing political and macroeconomic conditions and still unsupportive credit rating.

The finance minister has had discussions with the group chiefs of Mashreq Bank and Dubai Islamic Bank in the last two days and talked to the Saudi finance minister last week.

An official said Pakistan would have to ensure a conducive environment with better credit rating and Saudi support before signing off term sheets with foreign banks for commercial lending. These banks are reported to have shown willingness for $300-350 million each in credit for the current fiscal year, to be dovetailed with sukuk bonds next fiscal year.

The finance ministry initially expected the bilateral trio of lenders to quickly roll over $12bn in annual debt portfolio by three to five years to secure approval of the IMF board for its $7bn economic bailout before the end of August. Now, he expects the IMF board approval in September.

For the current fiscal year, Pakistan has pitched about $20bn in foreign borrowing target in the budget, besides another $3bn rollover from the UAE that was reported separately for the balance of payments.

With this much borrowing, Pakistan’s reserves were estimated to grow to about $19 to 20bn by the end of the current fiscal year.

Of the $20bn estimate, about $4bn is again targeted to be arranged through foreign commercial borrowing during the current fiscal year, with another $1bn to be raised through international bonds.

Published in Dawn, August 24th, 2024