Pakistan to borrow $4bn loan from Saudi-backed Islamic Development Bank

ISLAMABAD: Pakistan plans to borrow more than $4bn from the Islamic Development Bank as part of efforts to revive the economy and restore the low levels of foreign currency, according to a report in the Financial Times.

The Financial Times quoted two anonymous officials saying that the Jeddah-based bank has agreed to make a formal offer to lend Islamabad the money when Imran Khan takes over as prime minister. Asad Umar, who is proposed as the next finance minister, is expected to accept the offer.

“The paperwork is all in place,” a senior adviser told the prestigious business daily. “The IDB is waiting for the elected government to take charge before giving their approval.”

The official further said that the loan would not cover the expected financing gap of at least $25bn during this financial year but was “an important contribution”.

One of Asad Umar’s first job will be to repair the  balance of payments problem, with high imports and stagnant exports having depleted the foreign exchange reserves.

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Earlier his week, he warned the situation is dire as the country has got $10bn dollars of central bank reserves and between $8bn and $9bn in short-term liabilities which is insufficient.

Pakistan has already drawn up plans to borrow up to $12bn from the International Monetary Fund bailout which is likely to come with strings attached. The IDB loan is one of the options being explored by Pakistan, and would be used mainly to pay for oil imports.

The Financial Times quoted an official at the State Bank of Pakistan who has been involved in negotiations with the IDB saying the loan had the backing of the Saudi government, “which wants to play a part in rescuing Pakistan from its present crisis”.

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Asad Umar has said that they will make a final decision to seek a bailout from the IMF or or friendly nations such as China by the end of September.

Pakistan’s foreign exchange reserves have plummeted over the past year and have been kept afloat by lending from China, which has deepened economic and diplomatic ties after pledging $57 billion in separate infrastructure loans for Pakistan. The rupee currency has been devalued four times since December.

While the economy is growing at 5.8 percent, the fastest pace in 13 years, Pakistan’s current account deficit widened 43 percent to $18 billion in the fiscal year that ended on June 30. The fiscal deficit has ballooned to 6.8 percent of the economy.