Pakistan, Saudi Arabia to discuss augmenting kingdom's $3 billion deposit

Pakistan and Saudi Arabia will discuss the possibility of "augmenting" the kingdom's $3 billion deposit in Pakistan's central bank by extending its term “or through other options,” a joint statement said on Sunday.

Last year, Saudi Arabia deposited $3 billion in the State Bank of Pakistan (SBP) to help support its foreign reserves. With a yawning current account deficit and foreign reserves falling to as low as $10.8 billion, the country is in dire need of external finances.

Pakistan also welcomed a Saudi decision to extend an agreement to finance exports of crude oil products and oil derivatives, Saudi state news agency SPA reported.

Earlier on Sunday, Finance Minister Miftah Ismail also confirmed that the Kingdom affirmed its "continuous support to Pakistan and its economy including the discussion of augmenting the $3 billion deposit with the central bank through term extension or otherwise, and exploring options to further enhance the financing of petroleum products and supporting the economic structural reforms for the benefit of Pakistan and its people".

The development came after a visit by Prime Minister Shehbaz Sharif to Saudi Arabia, where he met with Crown Prince Mohammed bin Salman.

During the visit, the Prime Minister also held meetings with relevant officials to discuss ways to enhance economic and trade ties and promote investment.

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"I think a basic aim of this visit by Sharif would be to reset relations with (Prince Mohammed bin Salman) and establish the terms of what is probably going to be a much more transactional partnership," Arif Rafiq, an expert on Pakistan and president of the Vizier Consulting risk advisory firm, told Reuters.

Saudi Arabia, the world's biggest crude exporter, already supports Pakistan's foreign exchange reserves and has established a mechanism for selling oil to Pakistan on deferred payment, he said.

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"The Pakistanis might ask Riyadh for additional deposits in its central bank because its external account is under severe stress," he added.

Pakistan's foreign exchange reserves have been under pressure since December last year.

In this regard, the revival of the International Monetary Fund (IMF) programme is also crucial for Islamabad. The country's foreign exchange reserves have depleted enormously in recent months. Apart from funding needs, the IMF nod would also pave way for other creditors.

Earlier this week, Pakistan's finance minister said that his government was focused on reviving the IMF programme, prepare the budget for next year, and stabilise the economy.

His statement came after the IMF said the Pakistani government had "agreed that prompt action is needed to reverse the unfunded subsidies which have slowed discussions for the 7th review."

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Ismail had earlier said the government has sought an increase in the size and duration of the IMF's EFF.

Addressing a press conference in Washington, the minister said he and his team had productive talks with the IMF, World Bank and the International Finance Corporation.

“We have requested the IMF to extend the EFF programme by a year from 3 to 4 years,” said Ismail, adding that his team received a positive response in this regard. “We have also requested the fund to enhance the overall loan size by $2 billion,” he said.