Islamabad: A local newspaper has reported that to control sliding foreign exchange reserves, the government obtained two short-term loans from international finance institutions to be able to maintain its three-month import bill.
In August, Pakistan obtained a $153m loan from Citibank and $77m loan from Islamic Development Bank (IDB) to make payment for crude oil import from Saudi Arabia. In this situation, the lender pays the amount on behalf of the borrower to the concerned party, as this has helped in lessening the burden on the forex reserves.
An agreement had been inked with IDB in April and May for borrowing $700m in loans, out of which $340m were used to import crude oil.
During the current financial year 2017-18, the incumbent govt has cumulatively borrowed $1.55b till now for crude oil imports from IDB.
Sources in State Bank of Pakistan (SBP) revealed that increase in remittances during August of $2b had contributed to keep the forex reserves above the three-month import cover bill.
The country’s forex reserves had been touching the ceiling of three-month import cover bill since last few months which were reported to be around the $14.3b mark.
As a condition for obtaining loans from World Bank (WB) for budgetary support purposes, Pakistan has to ensure that its official foreign exchange reserves are over the three-month import cover bill.
In end of August, it had been reported, that government was considering issuing either an Islamic Sukuk or Eurobond worth $1b by the end of October this year.
The government had been forced to consider issuing a $1b Islamic Sukuk at an interest rate of 5.5pc in light of mounting current accounting deficit and dwindling foreign exchange reserves.
Since PM Shahid Khaqan Abbasi took over, he has expressed that imports needs to be reduced by other means, which would help in cushioning the forex reserves.
The government is considering offering incentives to expats to make investments in Pakistani dollar-denominated bonds and taking measures that would help exporters in bringing back more revenue into the country.
