KARACHI: The Saudi Fund for Development (SFD) on Sunday confirmed the rollover of $3 billion deposit placed with Pakistan’s central bank, the State Bank of Pakistan (SBP) confirmed, in a move that financial experts say could see investors' confidence rise.
The deposit agreement between the Saudi Fund for Development (SFD) and the SBP was signed in November 2021 for the $3 billion deposit to support Pakistan’s dwindling foreign exchange reserves.
The deposit agreement between the Kingdom of Saudi Arabia, represented by the SFD and Pakistan, represented by the SBP, was signed by SFD Chief Executive Sultan Bin Abdul Rahman Al-Marshad and then SBP Governor Dr. Reza Baqir.
“Saudi Fund for Development (SFD) has confirmed rollover of $3bn deposit maturing on 5 December 2022 for one year,” the SBP wrote on Twitter. “Deposit is placed with SBP and is part of its forex reserves. This reflects continuing strong and special relationship between KSA and Pakistan.”
Pakistan’s foreign reserves declined by $176 million to stand at $8.624 billion due to external debt and other payments during the week ended, on September 09, 2022, data by the central bank showed.
The South Asian country can cover import payments for only 40 days, given Pakistan’s low reserves, which has led to added pressure on the rupee. Over the past couple of months, the rupee has plummeted to historic lows against the US dollar.
Pakistan’s currency continues to remain under pressure, mainly due to the surge in demand for food and oil imports. Experts said the SFD deposit rollover will continue to support Pakistan’s foreign currency reserves.
“Continuity of SFD deposit of $3 billion will help support Pakistan’s foreign currency reserves,” Dr. Khaqan Najeeb, former advisor to the finance ministry, told Arab News. “The extension of the deposit does not increase Pakistan's current level of foreign exchange reserves of SBP, which stand at a critical level of $8.62 billion.”
Najeeb said the increase in Pakistan’s reserves is critical through increasing inflows to meet its balance-of-payments needs and to stabilize the currency market.
Pakistan’s currency dealers also expect the rollover confirmation from the central bank will boost investors’ confidence in the market.
“I think the rollover will change sentiments in the currency market and the rupee will appreciate against the dollar,” Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan (ECAP), confirmed.
However, some experts don’t expect major fluctuations in the currency market, saying that Pakistan needs more foreign inflows amid dwindling forex reserves.
“Don't think this is a major development for the currency market as this was very much anticipated,” Muhammad Sohail, CEO of Topline Securities, a Karachi-based brokerage firm, told Arab News. “Pakistan needs dollar inflows immediately to calm the markets.”
The rollover by SFD reflects the strong relationship that the two countries enjoy and will further augment the economic ties between the two brotherly countries, the central bank said.
