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'Saudi help to give breathing space to Pak Govt; improve negotiating position with IMF'

twitter-logoPTI | October 24, 2018 | Updated 18:57 IST

(Eds: Updating with more inputs and quotes) Islamabad, Oct 24 (PTI) Saudi Arabia's USD 6 billion assistance package of loans and deferred payments to Pakistan will immediately relieve pressure on the cash-strapped government and improve its negotiating position during the tough bailout negotiations with the IMF, media reports said Wednesday. In the deal announced Tuesday after Prime Minister Imran Khan called on Saudi King Salman bin Abdulaziz, Riyadh said it will give Pakistan USD 3 billion in foreign currency support for a year and a further loan worth up to USD 3 billion in deferred payments for oil imports. Pakistan's Finance Minister Asad Umar recently said the country may need more than USD 12 billion to plug its finances as the current-account deficit widens and foreign-currency reserves plummet. The Saudi assistance will immediately push the official foreign currency reserves back to double digit in addition to lessening the stress on the external sector. Saudi Arabia will place USD 3 billion cash deposits with the State Bank of Pakistan, in addition to providing a one-year deferred payment facility for the import of oil, worth up to USD 3 billion, according to the Pakistan Foreign Office. The cash injection will immediately relieve pressure on the government and improve its negotiating position during the upcoming programme loan talks with the International Monetary Fund, starting from November 7, the Express Tribune said. The cash assistance will lower the requirements to devalue the rupee, as the one-off assistance will for the time being improve the macroeconomic projections, the report quoted some independent economists as saying. The Saudi package may provide breathing space to the government for dealing with economic challenges, but would not be enough to avoid the IMF facility, the Dawn newspaper reported. It is believed that improved foreign exchange reserves would strengthen Pakistan's negotiating position in talks with the IMF, it added. The situation could further improve if China also makes some commitments to rescue its 'all-weather friend', it said, noting that Khan is scheduled to travel to China on November 3 for his first visit. Saudi Arabia agreed to bail out Pakistan during the second visit of the prime minister, as the agreement could not be reached during his September visit to the kingdom, it said. Prime minister Khan is keen to avoid the IMF bailout package and had requested Saudi Arabia, China and the United Arab Emirates for placement of deposits in the central bank to artificially inflate the foreign currency reserves, the reports said. Pakistan formally approached the IMF on October 12 for a bailout to tide over the economic crisis. But some tough talking by IMF Managing Director Christine Lagarde and the US on Pakistan's bailout plan, demanding absolute transparency on the country's debts, including those owned by China under the China-Pakistan Economic Corridor (CPEC) projects, has upset Islamabad. US Secretary of State Mike Pompeo has signalled major reservations about the IMF granting Pakistan another bailout as Islamabad assumes billions of dollars in debt for the CPEC, a multi-billion dollar series of Chinese funded infrastructure projects. Meanwhile, Pakistani stocks climbed by more than four per cent on Wednesday after Saudi Arabia pledged to provide Islamabad with USD 6 billion in financial assistance. The benchmark KSE 100 index of the Pakistan Stock Exchange gained 1,556 points or 4.13 per cent in intra-day trading to push the index to 39,271 points. The gains followed a string of losses on the bourse after mixed signals from Prime Minister Khan's government on plans to address the country's financial woes. The US dollar also fell by Rs 1.21 against the rupee in the interbank market, and was trading at Rs 132.70 in the early hours, Geo News reported. "The market has welcomed the Saudi package which has eased off the situation Pakistan was faced with of late," Muzammil Aslam, former chief executive of EFG Hermes Pakistan the only foreign brokerage house in the country. Saudi Arabia gave USD 1.5 billion grant in 2014 when Pakistan's economy was facing similar pressures. It also gave oil on deferred payments in the 1990s, but Pakistan never repaid the amount, according to a media report quoting officials of the finance ministry. Pakistan is in search of USD 12 billion foreign loans and aid to avoid default on international debt obligations, as the country is required to return USD 11.7 billion loans to foreign countries. After the USD 3 billion cash assistance from Saudi Arabia, the Pakistani central bank SBP's reserves will increase to USD 11 billion. The USD 3 billion oil on deferred payments will lower the overall financing needs by the same amount, which had been earlier estimated at USD 31 billion, the report said. PTI AKJ AKJ

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