Pakistani Government Faces Challenges in Managing Dollar Arrangements for Petroleum Imports

The Pakistani government is facing difficulties in managing its dollar arrangements for petroleum imports, including syndicated loans worth $3.3 billion from the Islamic Development Bank, which come with a 10% interest payment. This interest payment also extends to loans from China and Saudi Arabia.

The agreement with Saudi Arabia regarding delayed payments for oil imports is set to expire in December, adding to the ongoing challenges. All of this occurs at a time when global petroleum prices are on the rise.

The issue of dollar inflows doesn’t end there. The government will need to reapply for a similar agreement with Saudi Arabia once the current one expires in December 2023 to maintain the facility of delayed payments for oil imports.

So far, Saudi Arabia has provided $600 million from March to August, with an expected $400 million remaining for the current fiscal year until December.

Major oil companies in Pakistan purchase crude oil on a monthly basis for $100 million on average and then inform the Saudi authorities, and in return, the Pakistani government receives the amount.

The Ministry of Finance has been in consultation with major oil companies, proposing syndicated financing from the Islamic Development Bank from 2023 to 2025, as the cost of available financing, both domestic and international, has increased due to the Islamic Development Bank’s interest rates.

In total, $3.6 billion has been arranged from the Islamic Development Bank, with $300 million being directly financed. The remaining $3.3 billion will be arranged through international banks’ syndicated financing.

A reliable source has confirmed that the estimated dollar inflow for the current fiscal year stands at $17.7 billion, with an estimated outflow of around $19.1 billion. This results in a gap of $1.4 billion.

Government sources have clarified that out of the estimated outflow of $19.1 billion, $7 billion will go towards the rollover of interest payments on loans obtained from China and Saudi Arabia, with a breakdown of $256 million and $126 million respectively.

However, a significant aspect to consider is that if the situation is analyzed in detail, the Ministry of Finance has estimated commercial loans of $4.5 billion, of which $2 billion will be obtained from the IMF during the current fiscal year.