Pakistan has formally requested a $1 billion oil facility from the Kingdom of Saudi Arabia (KSA) on a deferred payment basis for the calendar year 2024, just ahead of upcoming IMF review talks.
According to official sources cited by The News, negotiations are underway, and the exact terms and conditions of the Saudi oil facility are yet to be finalized in the coming months. This request for the Saudi oil facility is part of the financing plan developed with the IMF to support Pakistan’s economy, with the goal of maintaining a $3 billion Standby Arrangement (SBA) program until March 2024.
The current oil facility is set to expire in December 2023, and Pakistan has already received $300 million during the last three months of the current fiscal year. The KSA had previously disbursed a total of $700 million between March and September 2023 under the existing SOF, and there is a possibility of an additional $300 million disbursement by the end of December 2023.
While the request to Saudi Arabia is viewed positively, there are concerns related to the Islamic Development Bank (IsDB). Initially committing to providing $3.3 billion under the ITFC mechanism for one year during the last financial year, the IsDB is now considering reducing its commitment from $1 billion to approximately $250–500 million in syndicated loan facilities for the current fiscal year.
However, a final decision is expected during the IsDB’s upcoming board meeting in December 2023. The reduction is attributed to challenges in securing dollar loans from international financial institutions, influenced by the current higher global interest rates.
The Ministry of Finance has been actively working to align with the IMF’s requirements, including efforts to control the budget deficit target. However, a significant challenge lies in the growing debt servicing requirements, projected to exceed the initially targeted Rs7.3 trillion due to the higher policy rate set by the State Bank of Pakistan, reaching a range of Rs8.3 trillion to Rs8.5 trillion for the current fiscal year 2023–24.
