KARACHI: Pakistan will soon receive the second tranche of two billion dollars from UAE’s foreign aid agency, the central bank said on Saturday – a much-needed inflow that will bring the country’s import cover capacity out of the danger zone.
The State Bank Pakistan (SBP) signed an agreement with Abu Dhabi Fund for Development (ADFD) for the placement of the second tranche of $2 billion. ADFD provides concessionary loans for socioeconomic development projects. “The agreement for the placement of the second tranche of $2 billion has been signed between the SBP and the ADFD,” the central bank said in a statement. “These funds are expected to be received shortly by SBP.”
In January, the ADFD committed $3 billion to deposit into the State Bank’s accounts when the country’s foreign exchange reserved plunged to cover only less than two months of import bill. Pakistan had received one billion dollar from the foreign aid agency during the same month. The upcoming second tranche will increase foreign exchange reserves to around $17 billion.
The country’s foreign exchange reserves stood at $14.956 billion as of March 1. The SBP’s reserves amounted to $8.116 billion, while commercial banks held $6.839 billion.
The SBP’s reserves will reach $10.116 billion after the inflows that will be sufficient to cover more than two months or 10 weeks of imports. Analysts said the bilateral foreign financial assistance will give further comfort to the balance of payments.
“The weaker external sector outlook appears to be improving with the foreign inflows coming in,” an analyst said. “The government needs to curb imports and pay attention to increasing exports and remittances.” Saudi Arabia has already poured three billion dollars into the SBP’s deposit. China agreed to provide $2 billion in aid to help replenish Pakistan’s foreign currency reserves. Current account deficit narrowed 16.79 percent to $8.424 billion in the July-January period, aided by efforts to curtail imports of goods and services. The SBP sees current account deficit to narrow to 4.5 to 5.5 percent of gross domestic product in FY2019 compared to 6.1 percent during the last fiscal year.
In January, the SBP said the financing of current account deficit remained challenging as foreign direct investments and private loans and official inflows were insufficient to completely finance the deficit. Pakistan received $2.324 billion of budgeted foreign assistance in the first half of the current fiscal year compared with $5.9 billion in the corresponding period a year ago, apparently due to the inability of the government to secure an umbrella support from the International Monetary Fund.
Pakistan initiated talks with the IMF in November last year over a potential bailout package to stabalise the economy and boost the foreign currency reserves. Both have yet to reach a deal.
The government hopes to secure the IMF bailout as Finance Minister Asad Umar last month said that talks between Pakistan and the Fund continued.
