Pakistan and the Islamic Development Bank (IDB) have signed a $1.2 billion financing agreement for import of oil and food products, as Islamabad also completes procedural formalities to receive oil on deferred payments from Saudi Arabia of a similar value.
The cumulative financing of $200 million per month by the IDB group and Saudi Arabia is expected to ease pressure on the rupee, as 45 percent depreciation in over three years has stoked inflation in the country.
The International Islamic Trade Finance Corporation (ITFC) of the IDB and Pakistan signed a $1.2 billion annual plan for 2022, according to a statement issued by the Ministry for Economic Affairs.
The annual plan would provide integrated trade solutions to support Pakistan’s energy and agriculture sectors for sustained economic growth, it added.
It is for the first time that both the borrower and the lender have agreed to include the import of food products in the financing facility, which was earlier meant only for oil and gas imports.
The economic affairs ministry said that the $1.2 billion agreement included financing the import of essential commodities such as crude oil, refined petroleum products, LNG (liquefied natural gas), food and agricultural products, in addition to implementing trade-related technical assistance intervention to ensure trade development impact.
The annual plan was signed during a ceremony at the ITFC headquarters in Jeddah between the ITFC and a delegation of the Ministry of Economic Affairs.
Brent crude oil headed towards $100 a barrel on Tuesday for the first time since 2014, European natural gas prices jumped and global equities saw choppy trading after Russian President Vladimir Putin ordered troops into Ukraine.
The international oil benchmark rose 3 percent to $97.31, as traders calculated the possibility of supply disruptions from Russia after Putin directed his military to enter Ukraine’s rebel-held Donetsk and Luhansk regions, the Financial Times reported on Tuesday.
Pakistan’s imports have doubled in the first seven months of current fiscal year, which have brought the rupee under pressure. The rupee further shed its value to Rs176.23 to a dollar on Tuesday.
For the current fiscal year, the government has budgeted a $1 billion IDB trade finance facility but disbursements are likely to remain above the budgeted amount after the government expedited the purchase of oil on deferred payments.
In current fiscal year 2021-22, the government has already availed $1.1 billion financing from the IDB for oil and the number could rise to around $1.4 billion by June, according to an official of the economic affairs ministry.
While referring to the $1.2 billion IDB facility, ITFC COO Nazeem Noordali stated that the new annual plan reflected the importance of longstanding cooperation between ITFC and the government of Pakistan.
ITFC will continue to mobilise financial resources to support Pakistan in its endeavours to achieve its economic targets through the existing framework agreement, said Noordali.
The economic affairs ministry said that despite a challenging year due to the Covid-19 pandemic, the ITFC provided around $1.1 billion in trade financing in calendar year 2021.
ITFC signed the fourth framework agreement with the government of Pakistan in June 2021 for $4.5 billion. Since 2008, the ITFC has provided $6.7 billion to Pakistan for purchasing oil on deferred payments.
The Ministry of Energy has informed the Economic Executive Council that first shipment under the $1.2 billion Saudi oil facility will reach Pakistan this week.
The $1.2 billion facility is part of the $4.2 billion package that the kingdom approved in November to once again bail out Islamabad.
Pak-Arab Refinery Limited (Parco) and National Refinery Limited (NRL) will receive oil on deferred payments from Saudi Arabia on behalf of the government. Parco and NRL have already signed implementation agreements with Saudi Arabia’s Aramco for lifting oil cargoes. Parco and NRL will get oil on deferred payments equal to $50 million every month.
In November, the federal cabinet approved to avail $100 million per month oil facility on deferred payment for one year at around 3.8 percent interest on the amount.