ISLAMABAD – Pakistan plans to borrow more than $4bn from the Saudi-backedIslamic Development Bank as part of its attempts to restore dangerously lowstocks of foreign currency, Financial Times has reported.
Two officials have told the Financial Times that the Jeddah-based bank hasagreed to make a formal offer to lend Islamabad the money when Imran Khantakes over as prime minister. They added that they expect Asad Umar, MrKhan’s proposed finance minister, to accept. “The paperwork is all inplace,” said one senior adviser in Islamabad. “The IDB is waiting for theelected government to take charge before giving their approval.”
The person added that the loan would not cover Pakistan’s expectedfinancing gap of at least $25bn during this financial year but was “animportant contribution”. Mr Khan, Pakistan’s former cricket captain, isexpected to take over as prime minister in the coming days after hisPakistan Tehreek-e-Insaf party won the most seats in last month’s election— though it fell short of an outright majority.
One of his first jobs will be to repair the country’s balance of paymentsproblem, with high imports and stagnant exports having bled the country ofmuch of its foreign exchange reserves. Speaking to reporters in Islamabadthis week, Mr Umar, who served as the PTI’s shadow finance minister whilein opposition, warned: “The situation is dire.
We’ve got $10bn dollars of central bank reserves, we’ve got somewherebetween $8bn and $9bn in short-term liabilities, and therefore your netreserves are close to nothing.” Officials have already drawn up plans toborrow up to $12bn from the International Monetary Fund — though such abailout is likely to come with strings attached, such as a demand to seethe details behind billions of dollars’ worth of Chinese loans.
The governments in Islamabad and Riyadh have moved closer in recent months.
Mr Umar is therefore exploring what other options remain open to him, ofwhich the IDB loan is one. Officials said the loan would be used mainly topay for oil imports, with higher crude prices having contributed toPakistan’s problems.
One official at the Pakistani central bank who has been involved innegotiations with the IDB said the loan had the backing of the Saudigovernment, “which wants to play a part in rescuing Pakistan from itspresent crisis”. Recommended Geopolitical shifts Imran Khan, cricket starwith a taste for victory Islamabad and Riyadh have moved closer in recentmonths after Pakistan agreed to send an undeclared number of troopsto “train and advise” security forces there.
The Pakistan government insists that the soldiers will not be used to fightin Yemen however, something the Saudis had previously requested. Despitethe promise of money from the IDB, economists warn that Mr Khan’s newgovernment will still have to enact potentially unpopular spending cuts andtax rises to help repair the government’s balance sheet.
“The budget deficit shot up to about 7 per cent of gross domestic productduring the last financial year,” said Waqar Masood Khan, a former financeministry official. “Bringing that down to the target of 4 per cent is notgoing to be easy.”