August 04, 2022 (MLN): China has rolled over a $2 billion loan in safe deposits for cash-strapped Pakistan’s economy amid dwindling foreign exchange reserves, as reported by The News on Thursday.
“China has rolled over three SAFE deposits. The first deposit of $500 million was due on June 27, 2022, the second $500mn matured on June 29, 2022, and the third $1bn was due on July 23, 2022. China’s State Administration Foreign Exchange (SAFE) deposits of $2bn have been rolled over for one year,” a top official of the Finance Division confirmed while talking to The News.
So far, China has rolled over a $4.3bn loan, including $2.3bn in commercial loans and now $2bn in SAFE deposits, making it possible for the government to bridge the external financing gap with a whopping amount of $35.9bn for the current fiscal year.
The IMF has linked the possibility of holding a planned tentative Executive Board meeting by end of August 2022 once adequate financing assurances are confirmed.
However, Pakistani authorities have been waiting for confirmation from friendly countries, especially from the Kingdom of Saudi Arabia (KSA), Qatar, and the UAE for bridging the financing gap of $4bn identified by the IMF for materializing the gross external financing requirements of $35.9bn for the current fiscal year.
The report by The News further stated that Saudi Arabia might confirm jacking up the oil facility on deferred payments of $1.2bn, making the total oil facility to the tune of $2.4bn. Pakistan and the IMF are also discussing the possibility of one billion Special Drawing Rights (SDRs) for conversion into US dollars for Islamabad. But this conversion of the SDRs facility might take some time because it was just an option for which the mechanism would have to be devised.
The UAE might show its interest in getting shares of state-owned enterprises (SOEs), especially in the oil and gas sector but it will take a few months for materializing such commercial transactions. The possibility of gas and RLNG on deferred payment from Qatar is likely to be materialized soon as discussions are underway on this subject. The selling out of RLNG power plants to one friendly country will also take some time but it could fetch $2-$3bn into the national kitty, it added.
All these developments have occurred at a time when the foreign exchange reserves have depleted at an accelerated pace.
The foreign exchange reserves held by the State Bank of Pakistan (SBP) stood at $20bn in August 2021 but it nosedived to $8.5bn on July 22, 2022. During the week ended on 22-Jul-2022, the SBP’s reserves decreased by $754 million to $8.5 billion due to external debt and other payments.
On the other hand, it appeared that the PKR had not given up the fight, posting its largest one-day gain ever on the back of higher inflows from exporters and decreased import payments, with hopes that the cash-strapped country was getting closer to securing a bailout from the International Monetary Fund boosting sentiment, it noted.
Meanwhile, the latest trade numbers reduced pressure on the rupee, improving the outlook for the country’s fragile current account balance. Pakistan's merchandise trade deficit for the month of July 2022 clocked in at $2.64bn compared to a deficit of $4.96bn in the preceding month, narrowed by 46.77% MoM.
The rupee strengthened to its highest level in nearly two weeks. The local unit closed at 228.80 per dollar versus its previous close of 238.38. It rose by 9.6 rupees, a record highest recovery in absolute terms. The daily surge of 4.19% was the best performance for the rupee since 1999.
The rupee slumped 14.4 percent in July, the biggest monthly fall since 1972. It has depreciated by 23% this year, weighed down by shrinking foreign reserves and concerns over a delay in the IMF loan program amid political turmoil in the country, it said.
In order to arrest the recent volatility in the exchange rate and the difference between the interbank rate and the rate offered by Exchange Companies (ECs) and banks to their customers, SBP has increased the monitoring of the foreign exchange operations of ECs and banks.
In this respect, SBP started inspections of a number of exchange companies and banks on Monday (August 1, 2022) On Tuesday (August 2, 2022) SBP suspended the operations of four branches of two ECs (Galaxy Exchange Co and Al-Hameed International Money Exchange Co) for violation of SBP regulations.
SBP has also imposed monetary penalties on some ECs in the recent past. Besides, due to violations of SBP instructions, arrangements of 13 franchises have been terminated by six different ECs in the recent past.
The central bank has also started conducting mystery shopping exercises throughout Pakistan to investigate the apprehensions that some ECs are not selling foreign currency to their customers.
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