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Pakistan repays IDB $137m on its refusal to grant rollover

By Mehtab Haider
December 16, 2017

ISLAMABAD: After refusal of the Islamic Development Bank (IDB) to grant another rollover on short term commodity financing, Pakistan on Friday made repayments of $137 million loan to the IDB by fulfilling its external obligations.

Pakistan had obtained this short term facility in the shape of loans to finance imports of petroleum products. The IDB has already disbursed around one billion dollars in shape of loans for commodity financing and rollover of loans from July to first half of December 2017 during the current fiscal year.

“Pakistan made efforts to get another rollover on account of $137 million loan from the IDB, but the Bank politely refused to grant another extension knowingly that Islamabad had recently generated $2.5 billion from international markets through the launch of Sukuk and Eurobonds,” said one top official of the Finance Division while talking to The News here on Friday. Pakistan has obtained most of these loans through the rollover ITFC of the IDB.

The International Islamic Trade Finance Corporation (ITFC) is an autonomous entity within the Islamic Development Bank Group created with the purpose of advancing trade to improve the economic condition and livelihood of people across the Islamic world.

The ITFC has consolidated all the trade finance businesses that used to be handled by various windows within the IDB Group. It commenced operations in January 2008. Another top official of the Finance Division told The News in background discussions on Friday that the Ministry of Finance held important meeting with Economic Affairs Division (EAD) and representatives of the provinces in order to gear up efforts for maximising disbursements in shape of loans and grants from multilateral and bilateral creditors during the second half (Jan-June) period of the current fiscal year.

“Our current account projections will depend on multiple factors, including making efforts to maximise dollar inflows from the donors in the remaining period of the current fiscal, and it cannot be achieved without geared efforts from EAD and provinces in order to achieve deliverables on accounts of timely implementation on donor funded development projects,” said the official.

Pakistan’s total foreign currency stood at $20.68 billion on December 8, 2017, after receiving $2.5 billion inflows in that week. The foreign reserves held by the State Bank of Pakistan were standing at $14.66 billion while the reserves of commercial banks were $6.02 billion. According to the SBP, on the week ending December 8,2017, The SBP’s reserves increased by $2.006 billion and touched $14.666 billion.

“The change in reserves was due to proceeds from Pakistan International Bonds and Pakistan International Bonds and payments on account of external debt servicing and other official outflows,” the SBP further stated.

The economists and analysts are apprehending rising current account deficit in the current fiscal year as it had already crossed $5 billion mark in first five months of FY2018, forcing the central bank to allow depreciation of rupee against all other currencies.

Although, the IMF has declared it as welcome move which was long overdue, but many independent experts are criticising it on various grounds. Zafar Sheikh, former DG Debt Office, Ministry of Finance, told this scribe that rising trade deficit remained core issue but could be cured or at least its financial damage could be reduced through various methods.

He said that entire trade deficit did not occur in single week or month, but it accumulated during the whole financial year with both positive as well as negative inflows from all avenues. “As overall net importer, the country’s central bank (SBP) got every right to manage exchange rate based on positive and negative cash flows of course containing speculations on both ways not abruptly in one direction but taking decision purely on merit on the basis of emerging situation,” he added. He proposed slapping immediate ban on import of consumer goods and luxury items and promote exports in a big way.