Things are getting easy for Pakistani finance managers partly due to the Coronavirus pandemic and partly due to the advent of the Biden administration that plans to change the Afghan policy of Trump administration in which Pakistani assistance may be required. The easing process is further facilitated when it was reported that the UAE has also reconsidered its decision to recall the deposit amount it has placed in the State Bank of Pakistan. This development will surely give a breathing space to planners and keep the foreign position of the country liquid for the time being.
The UAE deposit of $1 billion lying with the State Bank is approaching maturity by mid-March 2021 and the Pakistani authorities were expecting the loan to be rolled over for another year as they were asked earlier by the UAE for the refund, a demand they withdrew and agreed to keep that amount with Pakistan. In this context it was reported that Pakistan’s highly-powered officials visited the UAE and convinced the UAE authorities for granting loan rollover keeping in view the economic difficulties faced by Pakistan and both the countries arrived at a consensus that the loan rollover would be granted at its maturity. It may be recollected that Saudi Arabia had withdrawn $2 billion deposited in Pakistan by the money provided by China as bridge financing to keep the IMF’s external financing plan intact because the Fund programme had envisaged rollover of external loans from the UAE, Saudi Arabia and China for three years period under the IMF programme.
It is also reported that in case of any financing gap, Pakistan will have to present alternate financing plan to keep the IMF programme afloat. This programme got suspended for almost a year after the eruption of COVID-19 pandemic but now it will be revived soon. The $1 billion loan was part of the $6.2 billion initial bailout that the UAE had announced in late 2018 helping the Pakistan government to avoid default on international debt obligations. Out of the committed $6.2 billion, the UAE disbursed $2 billion. It did not make the $3.2 billion oil financing facility and also withheld last $1 billion cash disbursements.
Pakistani officials maintain that less disbursements by the UAE as against the commitments were because of Pakistan’s decision to avail $500 million cash support from Qatar. Anyway, the prospect of returning the UAE money would have further constrained the already hard-pressed financial resources of the country. It may be borne in mind that Pakistan had returned the Saudi loan by securing three different financing pipelines from China. Beijing gave $1 billion as soft loan, a credit-swap financing line of $1.5 billion and $500 million commercial loan from the Industrial and Commercial Bank of China. The Chinese assistance helped the State Bank of Pakistan’s (SBP) in maintaining the gross foreign exchange reserves of around $13 billion.
Facing acute lack of financial resources the government is currently implementing various conditions to revive the stalled IMF programme and subject to meeting all these conditions, the IMF Executive Board might approve the next tranche on 24 March. This is a tedious process as it implies increasing the financial burden on the populace that is already overburdened. The restraints of generating higher taxation revenues have already put the government in a quandary with no immediate improvement foreseen in this respect. As part of the IMF conditions, the government is amending the State Bank of Pakistan Act of 1956 and one of the clauses of the new bill relates to definition of the monetary liabilities of the central bank.
Just to partly alleviate the financial burden the government has proposed a new definition of monetary liabilities, which will transfer such liabilities of the central bank on the books of the federal government. The monetary liabilities are proposed to be calculated by reducing the sum of deposits of the government, amounts owing to the IMF, the WB, the ADB or other such instruments, deposits of foreign central banks or sovereign wealth funds, utilised swap lines of foreign central banks and balance of participant central banks under any clearing union. About $4.5 billion Chinese loans taken in the shape of credit swaps are not part of the external public debt of the country.
Before formally approving the $6 billion bailout package in July 2019, the IMF had assured commitments from the UAE, China and Saudi Arabia that these countries would not withdraw their financial support to Pakistan during the IMF programme period, according to the sources. In its reports the IMF has described rollover of these loans critical for Pakistan’s external debt sustainability as the country remains unable to enhance its exports that can replace these loans. In this context the favour done by the UAE is very pertinent and has come at the right time. TW