Saudi Arabia extends term of $3b deposit for Pakistan

The State Bank of Pakistan announced on Friday that Saudi Arabia had extended the term for the $3 billion deposited with the Central Bank – a much-need boost for the economy and market sentiments amid the shrinking foreign reserves.

In a series of tweets, the State Bank of Pakistan (SBP) said the decision came on the directives of the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz Al Saud.

The extension of the term was a “continuation of the support provided” by Riyadh to Pakistan to shore up the country’s foreign currency reserves and help Islamabad in “facing the economic repercussions of the COVID-19 pandemic”, the tweets read.

Moreover, it added that the deposit has also contributed to Pakistan’s aim of meeting “external sector challenges and achieve sustainable economic growth”.

In September this year, the Saudi Fund for Development (SFD) had confirmed the rollover of the deposit for a year. It was expected to mature on December 5.

The deposit agreement was made between Pakistan and the Kingdom in November 2021, in a bid to support Pakistan’s foreign currency reserves and contribute toward resolving the adverse effects of the COVID-19 pandemic.

Foreign reserves down

Earlier, the SBP had said that the country’s foreign reserves for the week ending November 25, had decreased by US$ 327 million to US$ 7,498 million.

According to the data released by the Central Bank, the foreign reserves for the month of November, had reduced by over one billions dollars, which is certainly an alarming news.

The reason for this trend were external debt payments, including governmental and commercial. However, refinancing of these loans is in process which will improve foreign exchange reserves in the coming weeks.

As of November 25, the SBP reserves stand at US$ 7,498 million compared to USD 7,825 million at the end of the week ending November 18.

During the same period, foreign exchange reserves held by commercial banks increased by US$ 60 million to the level of US$ 5,879 million.

Meanwhile, the overall reserves held by the country witnessed a decrease of US$ 267 million and stand at US$ 13,378 million on November 25.

The SBP also projected that the current account deficit was expected to remain moderate in FY23, with the reserves gradually improving as anticipated external inflows from bilateral and multilateral sources materialize.

If the recent decline in global oil prices intensifies or the pace of rate hikes by major central banks slows, pressures on the external account could diminish further.

Govt meets key IMF demand

After showing a lot of hesitance, the government went ahead with the increase in the petroleum levy on high-speed diesel to almost double it from Rs12.59 to Rs25 per litre, representing a hike of Rs12.41, with effect from December 1, 2022.

The decision meets a key IMF (International Monetary Fund) demand which will help releasing the latest tranche for the cash-starved country, thus ending uncertainty in financial markets and economy.

It has also increased the levy on kerosene oil by Rs1.03 to Rs7.01 per litre and on light diesel oil (LDO) by Rs7.49 to Rs15.39 per litre.

In Pakistan, diesel is widely used in the agriculture and transport sectors with the army being a key user of kerosene oil in the northern parts of the country. Its demand increases especially in the winter season for cooking and heating purposes. LDO is used by the industry.

The government had already increased the petroleum levy on petrol and high octane blending component (HOBC) to Rs50 per litre, which is the maximum levy approved in the budget.

Separately, the Oil and Gas Regulatory Authority (OGRA) increased their margins and freight rates, in a move that will increase the earnings of oil marketing companies (OMCs).

According to a notification, the margin on petrol is increased by Rs0.32 to Rs4 per litre and for diesel by Rs1.32 to Rs5 per litre.

The Economic Coordination Committee had already approved margins of Rs6 per litre on petrol and diesel for the OMCs. However, it clarified that it would be subject to the variation in oil prices. Hence, the OMCs were expecting that the margins would be raised to Rs6 per litre.

Earlier, the government had approved margins of Rs7 per litre for the petroleum dealers but not for the OMCs, which led to protests by them.

Later, the ECC endorsed an Rs6 per litre margin, but the recent increase was not in line with expectations of the oil industry.

It is important to note that freight, calculated by OGRA, does not go to the national exchequer. It is the cost of moving petroleum products across the country, which is paid to the OMCs, depending on how much and where they transport products.


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