Pakistan seeks $1 billion oil facility from Saudi Arabia ahead of IMF talks

• Pakistan requests for Saudi oil facility for 2024.
• Existing facility will expire in December 2023.
• Talks with IMF likely to be held in November.

ISLAMABAD: With Pakistan set to begin review talks with the International Monetary Fund (IMF), the government has requested Saudi Arabia to provide a $1 billion oil facility on deferred payment for the calendar year 2024, reported The News on Wednesday.

“Pakistan has made a formal request for $1 billion Saudi Oil Facility (SOF) on deferred payment with effect from January 2024. The KSA has not yet given its confirmation, and its exact modalities will be worked out within the next couple of months, including attached cost and other terms and conditions,” sources told the publication.

The facility is part of the financing plan agreed upon and worked out with the IMF by Pakistani authorities as part of the $3 billion Standby Arrangement (SBA).

The existing facility will expire in December of this year.

So far, Islamabad has received $300 million during the last three months (July–September) of the current fiscal year.

Under the existing SOF, KSA had made a total disbursement of $700 million from March to September 2023, and it was hoped that another $300 million might be disbursed by the end of December 2023.

Another official, who spoke on the condition of anonymity, said it was a positive development, but also shared bad news regarding the Islamic Development Bank’s (IsDB) pledge of $3.3 billion under the ITFC mechanism. As part of the pledge, the bank was supposed to provide $1 billion during the current fiscal year.

However, the bank has now indicated that it may cut down from $1 billion to around $250–500 million in syndicated loan facilities for the current fiscal year. The IsDB is expected to grant its final assent at its upcoming board meeting, which will be held in December 2023.

The IsDB team, in conversation with Pakistani authorities, blamed multiple reasons for the decision including difficulties in generating dollar loans from international financial institutions because of high interest rates across the world.

IMF review talks

Meanwhile, the Ministry of Finance has started preparing for the upcoming talks with the IMF which are expected to be held within the first 10 days of November. 

However, the exact schedule of the IMF’s review mission is not yet confirmed.

The finance secretary has convened an important meeting of all ministries, divisions, and departments for tomorrow (Thursday) to get an update on all structural benchmarks, indicative criteria and performance criteria agreed with the IMF for the end of September 2023.

As per The News, the finance ministry has made all-out efforts to restrict the budget deficit target within limits agreed with the IMF. 

It had warned the provinces to trip down spending, and the latest provisional estimates suggest that Punjab and Sindh had made significant progress on it.

Another challenge for restricting the overall fiscal deficit is the rising debt servicing requirements that would, of course, balloon and stand beyond Rs8.3 trillion to Rs8.5 trillion for the current fiscal year 2023–24 against the initially envisaged target of Rs7.3 trillion in the wake of surged policy rate of central bank.