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Saudi Fund for Development, SBP sign agreement for $3b deposit

SuvarnaTeja

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Saudi Fund for Development, SBP sign agreement for $3b deposit
Deal will pave way for receipt of financial assistance


Our CorrespondentNovember 29, 2021

deposit amount shall become part of central bank s foreign exchange reserves photo file

Deposit amount shall become part of central bank’s foreign exchange reserves. PHOTO: FILE
KARACHI:
Pakistan on Monday moved one step closer to receive the $3 billion deposit from Saudi Arabia as the two countries signed a deposit agreement to pave way for receipt of the financial assistance.
According to a statement released by the State Bank of Pakistan on Monday, the agreement was signed between Saudi Fund for Development (SFD) Chief Executive Officer Sultan Bin Abdul Rahman Al-Marshad and State Bank of Pakistan (SBP) Governor Dr Reza Baqir.
Under the deposit deal, Saudi Fund for Development would park $3 billion in the State Bank of Pakistan.
“The deposit amount shall become part of central bank’s foreign exchange reserves,” it said. “It will help support Pakistan’s foreign currency reserves and contribute towards resolving the adverse effects of the Covid-19 pandemic.”
According to the SBP, the deposit agreement reflects the strong and special relationship between the Kingdom of Saudi Arabia and Pakistan and it is expected to further augment the economic ties between the two brotherly countries.
On October 27, Saudi Arabia agreed to provide $3 billion to Pakistan in the shape of cash assistance along with $1.2 oil facility on deferred payment.
It is the second financial assistance package that the kingdom has extended to Pakistan in the past three years, aiming to help the country manage a brewing external sector crisis. The kingdom had extended a similar package valuing at $6 billion in October 2018 to provide a breathing space to Pakistan before the country went to the International Monetary Fund for an extended loan facility.
 

SuvarnaTeja

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yes I agree but there is a ego problem related to CPEC. You can see we have done nothing and chinese loans aren't for free. China knew about our economic situation. They used right timing to fool our leaders. Now where is CPEC? All is see is Chinese fishing in balochistan waters and protests by fishermen. I mean no country operates like this. What is the end result? may be they will sell gwadar to China forever. this is what china wants. First coronavirus, now this, i mean enough is enough.

@Arsalan345


The issue is Pakistan's policy swings like a pendulum between China and the West. What Pakistan needs to do is consolidate all debt with Chinese money to gain trust of China.
 

RealNapster

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@Arsalan345


The issue is Pakistan's policy swings like a pendulum between China and the West. What Pakistan needs to do is consolidate all debt with Chinese money to gain trust of China.

I think we should take loan from Chinese bank ( 1 single bank) on 1% interest rate, 5 years grace period and 30 years of payback period. And pay all debts of all countries and organizations like ADB, IMF, WB, America etc etc... They we pay Chinese each year in the amount of $ 5-7 billion each year. Which will be much less than what we currently pay on debt servicing each year. Just last year we paid $12 billion back in loans and interest.

Thus way, on a loan of $150 billion , we will just pay $20 billion in interest in 30 years. And almost $7 billion in yearly instalment after 5 years grace period.
 

Wood

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I think we should take loan from Chinese bank ( 1 single bank) on 1% interest rate, 5 years grace period and 30 years of payback period. And pay all debts of all countries and organizations like ADB, IMF, WB, America etc etc... They we pay Chinese each year in the amount of $ 5-7 billion each year. Which will be much less than what we currently pay on debt servicing each year. Just last year we paid $12 billion back in loans and interest.

Thus way, on a loan of $150 billion , we will just pay $20 billion in interest in 30 years. And almost $7 billion in yearly instalment after 5 years grace period.
For 1% interest rates, you will have better luck with Japanese lenders than those from China.

 

RealNapster

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For 1% interest rates, you will have better luck with Japanese lenders than those from China.


Japanese are giving loans with 0.5- 0.6 interest rate but for development projects where they can bring clauses of ( % procurement from Japanese companies ). I don't think they will offer loan just as a loan. Take example of Indian bullet train project. They put clause in contract that atleast 30% of the required material/softwares etc will be procured from Japanese companies
 
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Wood

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Japanese are giving loans with 0.5-.06 interest rate but for development projects where they can bring clauses of ( % procurement from Japanese companies ). I don't think they will offer loan just as a loan. Take example of Indian bullet train project. They put clause in contract that atleast 30% of the required material/softwares etc will be procured from Japanese companies
Yes, this is actually pretty standard for soft loans. Good thing is, the Japanese cannot bring cheap labor. So developing countries will only take high skilled work from Japanese companies.
 

SuvarnaTeja

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I think we should take loan from Chinese bank ( 1 single bank) on 1% interest rate, 5 years grace period and 30 years of payback period. And pay all debts of all countries and organizations like ADB, IMF, WB, America etc etc... They we pay Chinese each year in the amount of $ 5-7 billion each year. Which will be much less than what we currently pay on debt servicing each year. Just last year we paid $12 billion back in loans and interest.

Thus way, on a loan of $150 billion , we will just pay $20 billion in interest in 30 years. And almost $7 billion in yearly instalment after 5 years grace period.


Yes. Pakistan should consolidate all external loans to a one big loan from China. You cannot rely on Saudis. Do you know Saudis can ask Pakistan to pay back the loans with 72 hour notice. Just get rid of all loans and just have one loan with China.


Cabinet approves $4.2b Saudi loan package
Minister says much-need hard cash to help stabilise exchange rate


Shahbaz RanaNovember 28, 2021

prime minister imran khan chairs meeting of the federal cabinet held in islamabad photo pid file

Prime Minister Imran Khan chairs meeting of the federal cabinet held in Islamabad. PHOTO: PID/FILE
ISLAMABAD:
The federal cabinet on Saturday approved two loan agreements worth $4.2 billion reached with Saudi Arabia, including the $3 billion cash deposit that the kingdom has extended for a period of one year but can withdraw it anytime by giving a three-day notice.
Pakistan will pay 4% interest on the cash deposit and 3.8% on the oil on deferred payment facility, according to the terms agreed between both countries. Unlike in the past, this time there is also no option for rollover of the Saudi loan and the country will have to return it at once after one year.
“The cabinet has approved the $3 billion cash deposit agreement and $1.2 billion oil on deferred facility agreement through the circulation of summaries,” Federal Minister for Information and Broadcasting Fawad Chaudhry confirmed to The Express Tribune. The minister said that the Saudi package will also help stabilise the rupee-dollar parity.
The finance ministry sources said that the $3 billion cash facility has been secured at an interest rate of 4%. The rate is by one-fourth times higher than the previous similar facility that Pakistan had obtained at a 3.2% interest rate.
At the new rate, Pakistan will pay $120 million interest on the loan – up by $24 million when compared with the 2018 similar facility.
At the conclusion of Prime Minister Imran Khan’s visit to the kingdom last month, Saudi Arabia had announced financial assistance to Pakistan.
Read Foreign loans swell 18% in Jul-Oct
The sources said Pakistan had to accept tough loan conditions due to the prevailing external sector vulnerabilities. They added that talks for another similar loan facility from a friendly country were also underway, which were expected to be concluded soon.
The cabinet also approved to avail $100 million per month oil facility on deferred payment for one year. “The country will pay 3.8% interest on the amount,” said the sources.
The sources said that under the agreement Pakistan will repay $3 billion to Saudi Arabia no later than one year from the date of the deposit. Saudi Arabia can also demand to immediately return the money in case of a sovereign default by Pakistan, said the sources.
According to another important clause of the agreement, the sources said, Pakistan will be bound to return $3 billion to Saudi Arabia within 72 hours of a written request by Saudi Arabia at any time during the term of the agreement.
“Saudi Arabia has also spelled out the terms of defaults, which would lead to the immediate withdrawal of the cash deposits,” said the sources.
A delay in timely interest payment would be deemed as default on the agreement. The failure by Pakistan to comply with any provision of the cash deposit agreement will lead to default. Also, Pakistan’s failure to service the public external debt of over $100 million will be deemed as default, said the sources.
An end to the IMF membership will also be treated as default, said the sources.
Read more Pakistan’s debt, liabilities cross Rs50tr
The finance ministry sources said that in case of a dispute, Saudi law will be applicable. However, Pakistan has surrendered its sovereign claim of immunity from suit, execution, attachment or other legal processes in relation to the $3 billion cash deposit agreement, the sources added.
The Express Tribune had sent questions to the finance ministry spokesperson, Yousaf Khan, who is also the additional secretary in-charge. But till the filing of the story, the ministry did not reply to the questions about the cost of the $3 billion borrowing, the time period of the lending facility and the reasons for surrendering the sovereign immunity.
The sources said that the office of the Attorney General for Pakistan had cautioned the finance ministry that waiver of the sovereign immunity may carry serious implications for the country.
However, the finance ministry sources said that such an eventuality would never occur as Pakistan never defaulted on its international payments obligations.
 

cloud4000

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What are the Saudis getting in return? There are no such things as a charity in international relations. Do they gain interest for the pointless deposit of $3 billion in SBP?
 

Wood

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4% interest rate is more than that of Chinese loans to Pakistan. I wrongly assumed that this was free money!
 

mudas777

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IK really need to focus on the export led industries as down the line we won't be able to pay even the interest rate. Going after the corrupt mafia and politicians is a noble cause but changing system takes time especially when too many maggots are under the wood work hiding for there own interests. The need of the hour should be a justice department which can focus on the corrupt element while IK should go after the foreign direct investments, house appliances, electronics and chemicals, automobile, manufacturing etc for exports. Agricultural exports can only bring so much foreign exchange.
IMF and Arab dependence is not going away and by the looks of it, only increasing and these shackled loans have to be paid through the tight fiscal polices, taxes and the hard graft not by just standing tall and borrowing more.
 

cloud4000

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Yes over 4% if I am not mistaken.

My bad. I missed that.

So it's even a worse deal than I thought. Pakistan is paying 4-percent interest for money that just furnishes their foreign exchange reserves and can be taken away at any time. The Saudis make free money and gain leverage over Pakistan.
 

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