SBP Governor Reza Baqir and SFD CEO Sultan bin Abdul Rahman al-Marshad sign the agreement in Karachi. Photo courtesy SFD
The ‘loan’ will be deposited with the central bank for one year to boost Pakistan’s foreign exchange reserves
The State Bank of Pakistan on Monday formally signed an agreement with the Saudi Fund for Development (SFD) to receive $3 billion that will be placed with the central bank for a year to boost its foreign exchange reserves.
According to the agreement, which was announced last month following a visit by the Prime Minister Imran Khan to the Gulf kingdom, Saudi Arabia would deposit $3 billion into the SBP’s account and would also provide $1.2 billion worth of oil on deferred payments.
On Monday, SFD Chief Executive Officer Sultan bin Abdul Rahman al-Marshad and SBP Governor Reza Baqir signed the agreement in Karachi. “Under this deposit agreement, SFD shall place a deposit of $3 billion with SBP. The deposit amount under the agreement shall become part of SBP’s Foreign Exchange Reserves,” read a brief press release issued by the central bank. “It will help support Pakistan’s foreign currency reserves and contribute toward resolving the adverse effects of the COVID-19 pandemic,” it added.
The government has maintained that the terms of the agreement are “confidential” and cannot be revealed without consent of both countries. However, local media has reported that the loan comes with harsh terms, including no option for a rollover of the agreement. Per reports, the $3 billion deposit carries 4% interest, while the deferred payments facility has 3.8% interest.
“The deposit agreement reflects the strong and special relationship between the Kingdom of Saudi Arabia and Pakistan and will further augment the economic ties between the two brotherly countries,” the SBP statement added.
Prior to the inking of the agreement, Adviser to the P.M. on Finance Shaukat Tarin had claimed it would result in appreciation of the Pakistani rupee against the U.S. dollar and help curb inflationary pressures. However, the rupee continued its decline against the dollar on Monday, closing at Rs. 176.20. Economic experts maintain that the currency would remain under pressure so long as Pakistan’s imports outpace its exports, creating a trade deficit that requires the government to spend more dollars than it earns in the global market.