Saudi Arabia has decided to extend the term of its $3 billion deposit with the State Bank of Pakistan (SBP) for an additional year.
Announced in a statement on Wednesday, the Saudi Fund for Development (SFD), representing the Kingdom of Saudi Arabia, confirmed the extension of the deposit term for the maturing $3 billion, originally set to expire on December 5, 2023.
This extension is part of the ongoing support provided by Saudi Arabia to Pakistan, contributing to the maintenance of Pakistan’s foreign currency reserves and fostering economic growth, as highlighted in the official statement.
Former adviser to the Ministry of Finance, Khaqan Najeeb, emphasized the importance of this $3 billion rollover, stating that it plays a crucial role in securing the estimated $25 billion in gross financing needs for Pakistan in the fiscal year 2024. Najeeb noted that the extension would strengthen the current International Monetary Fund (IMF) program, as the IMF seeks confirmation of commitments from lenders and friendly countries.
Furthermore, this rollover is anticipated to pave the way for the approval of the IMF Executive Board for the second loan tranche of $700 million. The original $3 billion deposit agreement was signed through the SFD with the SBP in 2021 and extended in 2022, reflecting the close relationship between the two nations.
Pakistan’s economic challenges are underscored by depleting foreign reserves and a potential decline in the value of the Pakistani rupee. Analysts predict the rupee may fall to 350 against the US dollar by the end of 2024. The country faced a near-default situation last year, prompting the IMF to approve a short-term bailout with stringent conditions.
The central bank’s foreign exchange reserves recently decreased to $7.180 billion, with commercial banks holding $5.122 billion, resulting in overall reserves of $12.302 billion. The SBP attributed this drop to debt repayment. Pakistan aims to secure a $700 million tranche from the IMF’s existing loan program after completing the first review, with approval expected early next month.
Additionally, the government anticipates approximately $1.2 billion in financing from the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank before year-end, along with increased inflows from friendly nations to support the economy.
