Muhammad Soban

After Pakistan’s agreement with the International Monetary Fund (IMF), Saudi Arabia has agreed to deposit $3 billion to the State Bank of Pakistan (SBP) to strengthen the foreign exchange reserves, which is a sigh of relief for Pakistan's sliding economy.

Saudi Arabia has also discussed allowing Islamabad to borrow up to $2.8 billion from the Fund using Riyadh's special drawing rights (SDRs). The kingdom plans to provide $100 million a month in petroleum products for 10 months as additional support, WealthPK reported.

Pakistan is experiencing a challenging economic period. Due to its difficult external environment and procyclical domestic policies, local demand had reached unsustainable levels. Consequently, FY22 was marked by fiscal and external deficits, pushing inflation higher and eroding reserve buffers.

Besides trade deficit, Pakistan also faces a large fiscal hole and a debt payment of $1.7 billion due by December. Averting default will depend on Saudi Arabia and other countries’ external support.

Last month, Pakistan successfully revived its IMF’s Extended Fund Facility (EFF) program and a staff-level agreement was reached between Pakistani authorities and IMF officials.

While talking to WealthPK, Dr Nasir Iqbal, Senior Economist at Pakistan Institute of Development Economics (PIDE), Islamabad, said that it is good news for the economy, as Pakistan is getting loans as well as support from friendly countries.

“This support will help cover the balance of the payment difficulties, and ease pressure on the exchange rate as it has been observed that the Pakistani rupee has appreciated in the market,” he said.

Dr Nasir said the Government of Pakistan has curbed imports to reduce the import bill and the remittances flow has increased which will also help limit the current account deficit.

However, he said that getting loans from the IMF and friendly countries is a short-term measure and temporary relief for the economy.

“Loans cannot be a sustainable measure for the economy. Pakistan has to show serious efforts to solve the structural problems of the economy,” he stated.

Nasir Iqbal said the only way to get out of economic difficulties is to set a common agenda while taking all stakeholders into confidence.

“Our economy is unable to compete at the international level due to low productivity. Pakistan has to focus on increasing exports and productivity which is the only viable and sustainable way to pull the country out of the difficult economic situation,” he said.

Independent News Pakistan-Wealthpk