Pakistan received $1 billion from Saudi Arabia Friday, a day after the United Arab Emirates deposited the first installment of a $3 billion financial support package aimed at helping the South Asian nation tide over a balance-of-payment crisis.
The U.A.E. transferred $1 billion as part of an agreement between Pakistan and the Abu Dhabi Fund for Development this month, the central bank said in a statement on Twitter Thursday. The total transfers so far from the U.A.E and Saudi Arabia stand at $4 billion, and will boost Pakistan’s reserves that had fallen to $6.64 billion, or less than two months of import cover, in the week ended Jan. 18. Riyadh also has pledged to supply oil worth $3 billion on deferred payments.
“It’s a short-term relief,” Mohammed Sohail, chief executive officer at Topline Securities Pakistan Ltd., said in Karachi. Pakistan will need more funding as the nation’s external account gap next fiscal year will again swell to as much as $20 billion, he said.
Pakistan has averted a balance-of-payment crisis this year and it is close to concluding an investment agreement with China, Finance Minister Asad Umar said Thursday. The Chinese aid is in addition to the support from Saudi Arabia and the U.A.E to help Pakistan bridge a $12 billion financing gap. The nation’s current-account deficit rose to an unprecedented $19 billion in financial year ended June.
The funding helped the benchmark Karachi stock exchange 100-index advance for a sixth straight day on Friday, taking its gain to 8.7 percent this year. The easing of funding concerns also made Pakistan’s sovereign bonds one of the top gainers among developing Asian countries so far this year.
Umar said the financial packages will help Pakistan negotiate better terms for a bailout loan from the International Monetary Fund, after talks hit an impasse in November over the fund’s proposed changes to currency and tax policy. The talks are ongoing, he said Thursday.
Last month, Fitch downgraded Pakistan’s credit score by a notch to B-, six levels below investment grade, citing heightened external financing risk from low reserves and elevated external debt.
Pakistan still needs a long term solution either through growth in exports or investment or a bailout from the IMF, Topline’s Sohail said.