Timely help

The Pak Banker - - FRONT PAGE -

Saudi Ara­bia is an all- weather friend and has once again come to Pakistan's res­cue. It has agreed to de­posit 3 bil­lion dol­lars for one year as bal­ance of pay­ment sup­port, ex­tended a one- year up to 3 bil­lion dol­lar de­ferred pay­ment fa­cil­ity for three years and con­firmed in­ter­est in set­ting up an oil re­fin­ery in Pakistan. Saudi Ara­bia has also agreed to re­duce visa fees for Pak­istani work­ers as well.

The de­ferred oil fa­cil­ity up to 3 bil­lion dol­lars im­plies that the im­port bill would be that much less each year for the next three years. Last fis­cal year July- June 2017- 18 Pakistan im­ported oil worth ap­prox­i­mately 14 bil­lion dol­lars, which re­flected a rise of over 60 per­cent with higher quan­tity im­ports es­ti­mated at around 29 per­cent while the rest was at­trib­uted to a rise in the in­ter­na­tional price of oil.

It may be re­called here that Saudi Ara­bia ac­counted for around 3 bil­lion dol­lars of im­ports last year or around a quar­ter of our oil im­port bill was sourced to the king­dom. The agree­ment there­fore in­di­cates that Saudi Ara­bia would al­low al­most the en­tire oil im­port bill, at cur­rent price of oil, to be de­ferred, a pos­i­tive de­ci­sion which in turn would no doubt re­duce the pres­sure on our for­eign ex­change re­serves. The de­ci­sion to al­low 3 bil­lion dol­lar di­rect in­jec­tion for bal­ance of pay­ment sup­port would fur­ther re­duce the pres­sure on our scarce for­eign ex­change re­serves that were es­ti­mated by the State Bank of Pakistan at an ap­pallingly low 8 bil­lion dol­lars, less than two months of im­ports.

As we know, Saudi Ara­bia is also the largest source of re­mit­tance in­flows though it de­clined to 308 mil­lion dol­lars last month com­pared to 465.6 mil­lion dol­lars the month be­fore, how­ever July- Septem­ber re­mit­tances from Saudi Ara­bia have been es­ti­mated at 1.26 bil­lion dol­lars com­pared to 1.2 bil­lion dol­lars in the com­pa­ra­ble pe­riod of the year be­fore. Pakistan's im­me­di­ate for­eign ex­change needs were con­ser­va­tively es­ti­mated at around 12 bil­lion dol­lars; thus the re­cent visit by Prime Min­is­ter Im­ran Khan to Saudi Ara­bia has halved this re­quire­ment, i. e., by 6 bil­lion dol­lars. The Saudi as­sis­tance is not a grant and has to be re­paid and is limited to this year - 3 bil­lion dol­lars af­ter one year and 3 bil­lion dol­lars in de­ferred fa­cil­ity would have to be cleared be­fore a fresh 3 bil­lion dol­lar de­ferred oil fa­cil­ity may be used.

It is ex­pected that the UAE may also fol­low suit, be­ing a ma­jor source of oil im­ports and re­mit­tance in­flows for Pakistan. China with more than 3 tril­lion dol­lar for­eign ex­change re­serves may opt to meet the re­main­ing short­fall in our for­eign ex­change re­serves sub­se­quent to the warn­ing by US Sec­re­tary of State Mike Pom­peo that the US would not sup­port IMF ex­tend­ing a bailout pack­age to Pakistan. De­spite crit­ics' re­marks, ex­perts are agreed that Pakistan had to bor­row to pay off mas­sive loans in­curred dur­ing the past five years and shore up its dan­ger­ously low for­eign ex­change re­serves. That the gov­ern­ment has man­aged to do so at min­i­mal cost with­out any pro­hib­i­tive con­di­tion­al­i­ties as well as in terms of the rate of in­ter­est charged on the loans as the IMF does not ex­tend con­ces­sional loans goes to its credit. How­ever, the gov­ern­ment would need to for­mu­late and im­ple­ment eco­nomic poli­cies that are po­lit­i­cally ex­tremely chal­leng­ing as well as eco­nom­i­cally sound. Go­ing for­ward, PTI's eco­nomic team should for­mu­late short and long term poli­cies to make the best of the Saudi largesse, espe­cially through projects and plans to jump- start the econ­omy and bring relief to the com­mon man. PTI gov­ern­ment has done well so far but it needs to do bet­ter in the fu­ture.

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