Pak fails to secure $3.2 bn oil facility on deferred payments from UAE

Cash-strapped Pakistan has failed to secure a $3.2 billion oil on deferred payments facility from the UAE, a media report Thursday quoted Finance Minister Asad Umar as saying.

The oil facility was part of the $6.2 billion that the United Arab Emirates announced to give to Pakistan in December to help the country overcome the serious economic woes.

"Most probably, the UAE oil facility agreement will not materialise," finance minister Umar told The Express Tribune.

The development could again bring under stress Pakistan's foreign currency reserves that have so far been maintained with help of friendly countries, the report said.

But Umar said the government has made alternative arrangements to meet its external financing needs for this fiscal year.

The reasons for cancellation of the $3.2 billion oil facility by the UAE could not be immediately ascertained, the report said while noting that the UAE had also postponed a scheduled meeting of the Joint Ministerial Commission last month.

The UAE has already transferred $2 billion cash into the coffers of the State Bank of Pakistan (SBP) and another $1 billion was expected very soon, the report said.

During the visit of Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan, Pakistani authorities had hoped that he would announce the UAE credit oil facility following the same model of Saudi Arabia. Later, the February deadline was given that was also missed, the report said.

It will be a setback for the Finance Ministry that had declared fully bridging the financing gap on back of $14.5 billion financial support from the UAE, Saudi Arabia and China, the report said.

So far, only Saudi Arabia has given $3 billion in cash and its oil facility on deferred payments has also been finalised.

The development on the UAE front came amid a delay in finalisation of an agreement with the International Monetary Fund (IMF), the report said.

Umar said the IMF is demanding free float of exchange rate but the government wants to move ahead towards this objective in a phased manner.

"The timing and pace of adjustments on flexible exchange rate was a matter of difference but now the differences have narrowed down," he said.

The negotiations with the IMF are continuing since October last year. China is also expected to provide $2 billion dollars as loan next week, said the Finance Ministry that tried to downplay the cancellation of the UAE oil facility.

The $3.2 billion UAE oil facility was expected to take the pressure off from the foreign exchange market besides stabilising the official foreign currency reserves.

Pakistan arranged the $3 billion cash from Saudi Arabia at 3.2 per cent interest rate. The UAE cash support has been secured for a period of two years at an interest rate of 3 per cent, according to a written reply that Asad Umar submitted in the Senate last week.

Pakistan's foreign currency reserves stood at $8.1 billion as of end of last week that is inclusive of Saudi Arabian, Chinese and UAE cash assistance.

The government continues to follow a multipronged strategy to ensure continued stability in the country's balance of payment (BOP) position. The strategy has included attracting more foreign direct investment, sale of assets and bilateral and multilateral flows, said Dr Khaqan Najeeb, Adviser and Spokesperson of the Ministry of Finance.

He said as part of this strategy, all the maturing short-term commercial loans have either been refinanced or rolled over, which will help keep the pressure off from the reserves.

It is assumed that Pakistan's net foreign exchange reserves are negative by close to $10 billion, the report said.

Finance Minister Umar on Wednesday did not disclose the exact figures of Net International Reserves (NIR) held by the SBP, the country's apex bank.

Responding to a question during a meeting of the National Assembly Standing Committee on Finance, he said when the Pakistan Tehreek-e-Insaf government came into power in August, "We were effectively at default stage but I will not share further details.