Secretary of Economic Affairs, Noor Ahmed confirmed to The Truth International (TTI) that Pakistan has secured a whopping $4.5 billion worth of three-year trade financing facility from Jeddah-based Islamic Trade Finance Corporation (ITFC) to cover import costs of crude, petroleum products, and liquefied natural gas (LNG).
A formal financing framework agreement on the arrangement would be signed early next week here, informed sources told TTI. The funds would be utilized under the Annual Financing Plan of roughly $1.5bn each.
This trade financing arrangement is in addition to about $531 million already signed by the Ministry of Economic Affairs with the Saudi Fund for Development (SFD) for project financing of Mohmand dam, a couple of coal-based projects besides a few hydropower projects including two in Azad Kashmir.
Pak-Arab Refinery Ltd (Parco), Pakistan State Oil (PSO), and Pakistan LNG Ltd (PLL) will utilize the financing for over three years (2021-23) for import of crude oil, refined petroleum products, and LNG and help augment the country’s foreign currency reserves and provide resources to meet the oil import bill.
In the first 11 months of the current fiscal year, Pakistan’s oil import bill has amounted to about $10bn but has been rising in recent months because of the increasing trend in the international oil prices. In the first 11 months, Pakistan has imported about $2.5bn each worth of LNG and crude oil besides $4.5bn worth of refined petroleum products.
ITFC is a member of the Islamic Development Bank Group that provides trade financing to member countries after putting together funds from financial institutions in the Middle East.
The sources said Pakistan had last year signed a $1.1bn trade financing facility for the current year but could not be fully utilized.
According to the sources, the financing cost for the upcoming financing facility would be lower than the existing one given substantial surplus liquidity of the banks in the United Arab Emirates and Saudi Arabia because of constrained business activities in the wake of the ongoing Covid-19 wave. The existing facility envisaged 2.3pc plus London Inter-Bank Offered Rate (Libor).
The source said the two sides may cover the agricultural commodities as well including DAP fertilizer in addition to the existing pipeline of crude, oil products, and liquefied natural gas. The sources said the ITFC had also committed in April 2018 a similar financing line for Pakistan for 2018-20 but utilization finally could not cross $3bn as private refineries were unable to import crude under the facility.
Before 2018, the ITFC’s financing was available only to Pak-Arab Refinery which was expanded to Pakistan State Oil in 2018. The facility is expected to provide relief in oil and gas import bills and ease pressure on foreign exchange reserves.
