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Chinese banks agree to refinance Pakistan with $2.3 billion funding

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  • Miftah Ismail announces “good news” on his Twitter handle.
  • Finance minister says inflow will help shore up foreign exchange reserves.
  • “Inflow is expected shortly after some routine approvals from both sides,” he adds.

ISLAMABAD: Finance Minister Miftah Ismail said Thursday that Chinese banks have agreed to refinance Pakistan with $2.3 billion worth of funds which will “shore up Pakistan’s foreign exchange reserves.”

Taking to his Twitter handle, Miftah wrote: “Good news. The terms and conditions for refinancing of RMB 15 billion deposit by Chinese banks (about $2.3 billion) have been agreed.”

The finance minister further added that inflow is expected “shortly” after some routine approvals from both sides, adding that this will help shore up the country’s foreign exchange reserves.

The news comes as a lifeline as the country is already facing an uncertain economic situation due to a delay in the revival of stalled multibillion-dollar International Monetary Fund (IMF) programme.

The development comes as a massive relief to economic policymakers that saw foreign exchange reserves held by the State Bank of Pakistan (SBP) fall to $10.09 billion, with the level staying at less than 1.5 months of import cover.

The agreement with Chinese banks is expected to bolster the reserves and enable the country to make import payments while lending some support to the rupee as well which has lost over 25% since the start of the outgoing fiscal year 2021-22.

IMF programme

The restoration of Pakistan’s delayed IMF programme rests on the government’s capacity to make fiscal adjustments of about 2.5% of the gross domestic product (GDP), or Rs2,000 billion, by increasing revenues and reducing expenditures in the upcoming budget 2022-23.

The IMF’s wish-list or demands do not end here, as the government must end petrol subsidies of Rs39 per litre and diesel subsidies of Rs53 per litre, raise electricity tariffs by Rs8 per unit via an increase in base tariff and fuel price adjustments, and increase gas tariffs by 20% on average to demonstrate its commitment to implementing the much-needed ‘reforms agenda’ under the advice of the IMF programme.

However, Finance Minister Miftah Ismail told The News that the staff-level agreement with the Fund was expected to be struck by mid-June 2022. 

It indicates that the staff-level agreement is expected only after the announcement of the next budget for 2022–23, in line with the IMF programme’s objectives.

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Pakistan’s gold price increases by an additional Rs. 800 per tola.

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The price of yellow metal in the local market hit Rs247,300 on the first working day of the week, following a rise of Rs800 in a single day.

The cost of ten grams of 24-karat gold increased by Rs686 on Monday, making the current price Rs212,020.

In addition, the cost of 10 grams of 22-karat gold increased significantly, trading at Rs194,351.

These fluctuations are strongly correlated with shifts in the US dollar’s value, demonstrating the tight connection between gold prices and exchange rates. This emphasizes how local gold markets are impacted by variables related to the global economy.

The price of the precious metal dropped $16 on the international market on Monday, hitting $2,348 per ounce.

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A delegation from Pakistan travels to the US to bargain with the IMF for a new loan.

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The Pakistani delegation consists of the Governor of the State Bank of Pakistan, the Secretary of Finance, the Additional Secretary, and other individuals.

The Finance Minister was greeted at the airport by Pakistan’s Ambassador to the United States, Masood Khan, and Embassy staff.

The Finance Minister will meet with representatives of the World Bank and IMF while he is in the US.

The IMF and Pakistan are expected to negotiate next week, according to sources.

Sources claim that Islamabad will apply for a new credit package from the IMF.

The Finance Minister’s itinerary also includes meetings with members of think tanks and the world press.

Last month, Pakistan and the IMF came to a staff-level agreement over the third and final review of the $3 billion stand-by arrangement. Should the board of the global lender approve this deal, Pakistan will get approximately $1.1 billion.

Although a specific date has not been determined, the IMF board is anticipated to evaluate the case in late April, according to a spokeswoman.

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Pakistan’s petrol prices are anticipated to rise.

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The Oil and Gas Regulatory Authority (OGRA) will not disclose the anticipated increase in fuel prices until its work is finished, according to sources.

Prime Minister Shehbaz Sharif will receive the summary of the petrol price, and sources further stated that the new pricing will be revealed following his approval today.

Noteworthy to highlight is that Pakistan was previously ordered by the International Monetary Fund (IMF) to impose an 18% General Sales Tax (GST) on gasoline.

Details indicate that Pakistan was requested by the Monetary Fund to stop reducing sales tax on all goods, including gasoline.

To boost tax revenue, Pakistan’s recently elected government should impose a sales tax on petroleum items in addition to a Rs 60 charge.

High-speed diesel (HSD) was reduced by Rs3.32 per litre on March 31 but petrol prices increased by Rs9.66 per litre by the government.

In contrast to the reduction in the price of high-speed diesel (HSD) to Rs282.24 from Rs278.92, the price of gasoline jumped to Rs289.41 per litre.

The adjustments were brought about by a commensurate increase in the price of gasoline and a decline in the price of HSD on the global market, according to a statement released by the Finance Ministry.

According to the statement, the adjustment was made in accordance with government policy, which transfers pricing differences from the foreign market to the home market.

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