Irshad Salim (Islamabad; Dec 14, 2018) — On Friday, Pakistan received the second $1 billion tranche from Saudi Arabia.
The country’s foreign exchange reserves now stand at 9.24 billion, with the third installment from Riyadh expected in January.
Pakistan received the first tranche of $1 billion from KSA in November.
The Kingdom has also established a credit line worth $3 billion for the sale of petroleum products on credit for three years, which will be reviewed thereafter.
Falling international petroleum oil prices have been a blessing for Pakistan’s economy, which largely depends on imported oil.With the collapse in oil prices seen in October and November, the country’s economy has been given a huge helping hand given that it is a net oil importer, said Fitch – one of three major global rating agencies.Also, Finance Minister Asad Umar has alluded that the government could afford a two-month delay in negotiations with the IMF as the $6-billion financial assistance secured from Saudi Arabia coupled with lesser outlay of foreign exchange to import oil suggested there was no imminent balance of payments crisis in the near term.
“We highlight that the collapse in oil prices, which started in October, will help to reduce its external deficit and downside pressure on the rupee,” Fitch Solutions Macro Research said in a commentary on “Economic Analysis – Oil Price Collapse to Pakistan’s Rescue” published on Thursday.
“The combination of low oil prices and an eventual IMF bailout will help the economy regain some of its footing.”
Pakistan is seeking up to $8 billion in bailout program from the IMF which it strategized to negotiate after seeking immediate financial assistance from friendly countries.
When pressed with the fact that Pakistan had received only $2 Billion in foreign packages, Information Minister Fawad Chaudhry said more information will be handed out in due time.
Fetch believes the loan program, which is expected by mid-January, can be delayed till the end of March.
The rating agency was confident that the delay was a temporary phenomenon and Pakistan would successfully achieve the bailout during January-March 2019.
It did not see any imminent balance of payments crisis–a view earlier echoed by PM Imran Khan’s team and some independent analysts.
After the receipt of second tranche of $1 billion from KSA. the Pakistan Stock Index KSE-100 on Friday rose by 574 points to close at 38,586.
The Index has been witnessing highs and lows for the last 6 weeks with gains and losses netting out to withstand the psychological benchmark of 38,000 points held in October.
The rating agency further said the Pakistani currency would remain stable at around the current level of Rs140 to the US dollar in the short run but would drop to Rs148 by December 2019. “This (IMF bailout and low oil prices) should allow the Pakistani rupee to stabilize against the US dollar at around the current level of Rs140/USD in the near term. That said, we expect the rupee to remain under downside pressure over the course of 2019, informing our forecast for the currency to reach Rs148/USD by end-2019,” it said.
The collapse in oil prices, which started in October, will help to reduce its external deficit and downside pressure on the rupee,” Fitch said.
However, “We expect the rupee to weaken further against the dollar over the coming quarters as the IMF would typically require the central bank to build up its foreign reserve buffers,” said the report.
The SBP governor said on Thursday that the exchange rate at Rs139 to a dollar was ‘near the equilibrium’. Pakistan would not crack under the IMF pressure on certain conditions, said the Finance Ministry sources cited by Express Tribune.
The report comes amid forecasts that remittance this fiscal year–ending in June 2019, may see an uptick of almost $1 billion additional.
This week, a senior official of the US Treasury Department said the United States wanted to help Pakistan in reviving its economy so that it was not a failure in the future.
Both IMF and US–which has substantial shares and voting rights in the lending institution, seek structural reforms in Pakistan’s economy.
(The writer is a business & construction consultant, analyst, and Editor-in-Chief of PKonweb and DesPardes presently based in Islamabad)