Pakistan seeks Arab creditors, China to convert $7.7 bn into long term loans — Hafeez Shaikh

Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh (L) and Chairman Federal Board of Revenue (FBR) Syed Shabbar Zaidi (R) address a media briefing in Islamabad on October 12, 2019. (AFP)
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Updated 04 June 2020

Pakistan seeks Arab creditors, China to convert $7.7 bn into long term loans — Hafeez Shaikh

  • Pakistan received $3 billion BoP support from Saudi Arabia, $2 billion from the UAE and $2.2 from China
  • Conversion of short term deposit will provide long term financial stability to the country, say experts

KARACHI: Pakistan is in talks with Saudi Arabia, the United Arab Emirates and China to extend the tenure of their $7.7 billion short term deposits, a move that will ensure long term forex stability of the South Asian nation, Dr. Abdul Hafeez Shaikh, the prime minister’s adviser on finance and revenue, told Arab News in an exclusive interview.
“Last year, when Pakistan was going through the worst balance of payment (BoP) crisis in our history, we were provided financial support by our brotherly countries,” Shaikh said on Monday.
Pakistan’s friendly countries were approached by the government of Prime Minister Imran Khan soon after assuming the office in 2018 as the country’s current account deficit reached $20 billion.
Responding to Pakistan’s call, Saudi Arabia deposited $3 billion while the UAE and China deposited $2 billion and $2.2 billion, respectively. Qatar also contributed by depositing $0.5 billion with Pakistan’s central bank.
“The $7.7 billion secured from the bilateral arrangements provided the much needed balance of payment support to Pakistan,” he added.
“These are short term deposits placed with the central bank in Pakistan at concessional rates,” the PM’s adviser said, adding: “We are in talks with our development partners to move these deposits toward longer tenors.”
Economists say these deposits provided a lifeline to the country’s economy that had higher imports and lower exports.
“The balance of payment support oxygenated the country’s economy that was much need for its survival. The support helped Pakistan not to default on its foreign payment obligations,” Muzzamil Aslam, senior economist, who is familiar with the developments, told Arab News.
Pakistan’s current account deficit (CAD) was $20 billion in 2018 which declined to $13.43 billion during the last fiscal year. Its further decline is also projected for the current fiscal year (2019-20).
“CAD is projected to decline to $4b [or 1.7 percent of the GDP] in the current fiscal year, compared to $20b when the government took office in 2018,” Shaikh said.
The major balance of payment support came from Saudi Arabia which provided $6 billion in financial assistance to Pakistan, with $3 billion in foreign currency support and $3 billion worth of oil on deferred payments. The agreement was signed during the visit of Prime Minister Imran Khan to the Kingdom in October 2018.
Economists say when Pakistan approached the International Monetary Fund (IMF) for the bailout program, the United States had expressed concerns that the money could be used to pay off debts, especially those taken from China.
“After we started getting the IMF assistance, the fund imposed a condition during the first review of the program to roll over these loans instead of paying them back. This was because the US had misgivings that Pakistan will pay the Chinese debt with the IMF money,” Aslam said.
However, the IMF acknowledged in April that “Bilateral creditors have maintained their exposure in line with debt sustainability objectives of the EFF [Extended Fund Facility].”
China maintained their exposure by renewing $2 billion bilateral deposits in March. Saudi Arabia also refinanced $3 billion BoP support loans that matured in November-January, while the UAE rolled over $1 billion BoP support loans in March. The oil facility with Saudi Arabia – worth $3.2 billion – was activated in August 2019 and has also been providing support to the balance of payments, according to the IMF documents.
Instead of frequent rollovers now, the government wants to convert these short term deposits into long tenors. “The IMF is behind this strategy,” Aslam informed. “The conversion will impact the status of these deposits in a way that loan rates will be decided in line with the international benchmark which may be LIBOR+2-3 percent.”
Economists say the conversion of these deposits will positively impact the economy of the country since Pakistan will get some breathing space and an opportunity to improve its overall financial condition. “It will provide long term forex stability. Otherwise, we will be under pressure to pay back $7.7 billion,” Aslam said.


Pakistani manufacturers hope to earn $2 billion by exporting PPEs, hand sanitizers

Updated 12 min 9 sec ago

Pakistani manufacturers hope to earn $2 billion by exporting PPEs, hand sanitizers

  • The country’s exports declined in the beginning of the year due to the outbreak of coronavirus
  • Some businessmen say Pakistan could have captured more market share by exporting these products earlier

KARACHI: Pakistani manufacturers hope to generate $2 billion by exporting Personal Protective Equipment (PPE) and hand sanitizers after the government granted them permission to sell these products in international market last week, exporters told Arab News on Thursday.

“We have set a target of $2 billion for this year and started exporting PPEs and hand sanitizers,” Ijaz Khokhar, chief coordinator of Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), said.

Pakistani manufacturers informed they were getting inquiries from international buyers who wanted to purchase these products much before the formal export began on June 26.

“We shared export samples with our potential buyers, got them approved and agreed on their rates,” Khokhar continued. “The export of face masks is still banned and we are seeking permission for that.”

According to government officials, the country has so far received $100 million of orders. “We expect this figure to cross $500 million in the coming months,” Federal Minister for Science and Technology Fawad Chaudhry said in a Twitter post last month.

Pakistani exporters expressed hope that their new foray into the international market would help the country compensate for its export losses due to cancelations of orders after the outbreak of the coronavirus pandemic earlier this year.

“Pakistani businesses suffered significant losses after the virus outbreak since many of the buyers canceled their export orders due to shrinking demand of different products. These PPEs and hand sanitizers will compensate the country for its losses,” Khokhar noted.

The country mainly plans to export PPEs to the Gulf countries, though it is also trying to explore the US and European markets.

“Our exports are mainly meant for the Gulf region. Exporters have applied for CE certification [to show conformity with health, safety, and environmental protection standards for products] which is mandatory for the European Union and are trying to secure the required approval from the Food and Drug Administration of the United States,” Khokhar said, adding: “Both are expected within a week. It will make it easier for us to export to these regions after that.”

Some exporters believe, however, that Pakistan may not be able to capture a major chunk of the market since it is getting into the game a bit late in the day.

“Many manufacturers and suppliers from other countries have also entered the market where there was a huge vacuum just a couple of months ago. Pakistan’s late decision in this regard is also expected to cut its market share. Export should have started at least a month earlier,” Muhammad Jawed Bilwani, chairman of Pakistan Apparel Forum, told Arab News.

In early June 2020, under its “make in Pakistan” strategy, the government decided to allow export of PPEs after the country’s textile sector changed its production strategy and started manufacturing face masks and protective suits. Exports of Tyvek suits, N95 and other surgical masks still remain banned.

“I advised him (Razak Dawood) in April to focus on PPE export and he followed up, opening a new window of opportunity for Pakistani companies,” Shoaib A. Kothawala, a leading textile entrepreneur from Pakistan who is now based in the US, told Arab News from California.

“Pakistan has a comparative advantage in the personal protective equipment (PPE) market,” a senior World Bank economist, Gonzalo Varela, recently claimed.

“Many textile and apparel firms have adapted quickly to the COVID-19 crisis and shifted their production to face masks and shields for health care providers and frontline workers at home and abroad,” he wrote in a blog posted at the WB website.