Pakistan gets $4.5bn facilities: ISLAMABAD The Islamic Trade Finance Corporation (ITFC) in Jeddah has agreed to provide Pakistan with a $4.5 billion three-year trade finance facility to cover the cost of oil, petroleum products, and liquefied natural gas imports (LNG). According to Dawn, a formal financing framework agreement on the deal would be inked here early next week.
This trade financing agreement comes on top of the $531 million agreed by the Ministry of Economic Affairs with the Saudi Fund for Development (SFD) for project financing of the Mohmand dam, a few coal-based projects, and a few hydropower projects, including two in Azad Kashmir.
Pak-Arab Refinery Ltd (Parco), Pakistan State Oil (PSO), and Pakistan LNG Ltd (PLL) will use the ITFC financing to import crude oil, refined petroleum products, and LNG over a three-year period (2021-23), bolstering the country’s foreign currency reserves and providing resources to meet the country’s oil import bill.
Pakistan’s oil import cost was around $10 billion in the first 11 months of the current fiscal year, but it has been growing in recent months as worldwide oil prices have risen. Pakistan has imported around $2.5 billion in LNG and crude oil, as well as $4.5 billion in refined petroleum products, in the first 11 months.
The Islamic Trade Finance Corporation (ITFC) is a member of the Islamic Development Bank Group that provides trade finance to member countries by pooling funds from Middle Eastern financial institutions. According to the sources, Pakistan negotiated a $1.1 billion trade financing arrangement for the current year last year, but it was not completely utilized due to lower international oil prices, weaker demand in Pakistan, and refinery constraints in obtaining Arabian Crude.
According to the sources, the financing cost for the upcoming financing facility will be cheaper than the current one due to banks’ considerable spare liquidity in the United Arab Emirates and Saudi Arabia as a result of the ongoing Covid-19 wave constraining economic activity. The current arrangement called for a 2.3 percent above the London Inter-Bank Offered Rate (Libor).
According to the source, the two sides may discuss agricultural goods such as DAP fertilizer, in addition to the current crude, oil products, and liquefied natural gas pipelines. According to the sources, the ITFC committed a similar credit line for Pakistan in April 2018, but utilization could not exceed $3 billion because private refineries were unable to acquire crude under the facility, which was largely limited to Parco and to a lesser extent PSO.
Prior to 2018, the ITFC’s financing was only available to Pak-Arab Refinery, which was later expanded to include Pakistan State Oil. PLL was included in the arrangement for the first time last year. ITFC had a small portfolio of roughly a billion dollars of its own and relied on funds from other private financial institutions for the majority of its operations. Indonesia, Egypt, and Bangladesh are among the other significant recipients of the ITFC’s trading facility.
The facility is expected to relieve strain on foreign exchange reserves and reduce the cost of oil and gas imports. The facility does not allow monies to enter Pakistan’s account, but it does relieve strain on the country’s foreign exchange reserves. PSO, Parco, and PLL would utilize this money to finance letters of credit for oil and LNG imports.
Because the previous $4.5 billion three-year financing framework was underutilized, Pakistan and the International Islamic Trade Finance Corporation (ITFC) agreed to a $1.1 billion trade financing facility for the current year on Wednesday. ITFC will mobilize $1.1 billion in trade finance under the Annual Financing Plan in 2021, according to an official statement made following the signing ceremony. Pakistan gets $4.5bn facility
The financing made available through this facility will be used by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco), and Pakistan LNG Ltd (PLL) to import crude oil, refined petroleum products, and LNG during the year 2021, helping to build up the country’s foreign reserves and providing resources to meet the oil import bill.
Economic Affairs Division Secretary Noor Ahmed and ITFC Chief Executive Officer Eng Hani Salem Sonbol signed the official documents verifying the agreement. The Islamic Development Bank Group’s ITFC is a subsidiary organization dedicated to developing and expanding intra-Organisational Islamic Cooperation commerce. Pakistan gets $4.5bn facility
While agreeing to a new three-year financing framework agreement, the two parties also agreed to include agricultural goods, such as DAP fertilizer, from an existing pipeline of oil products and liquefied natural gas, in the plan. The new funding framework will be presented for approval at the Islamic Development Bank’s annual meetings in June.
The administration was unable to use about a third of the $4.5 billion packages signed by the two parties in April 2018 to fund oil and LNG imports for three years (2018-2020). In the three years leading up to December 2020, the total utilization was worth $3 billion. Pakistan gets $4.5bn facility
Unfortunately, yearly utilization did not reach $900 in the first two years and just $1 billion in the third year.
Prior to the 2018-20 framework agreement, the ITFC had offered Pakistan a $3.2 billion trade finance facility with a comparable term to cover crude oil and some petroleum products. Pakistan gets $4.5bn facility
Pakistan’s oil import cost was around $10 billion in the first 11 months of the current fiscal year, but it has been growing in recent months as worldwide oil prices have risen.
The funds do not enter Pakistan’s account through this facility, but they do relieve strain on the country’s foreign exchange reserves while also funding its oil and gas import bill. PSO, Parco, and PLL would utilize this money to finance letters of credit for oil and LNG imports. The credit facility is subject to the London Interbank Offered Rate + 2.3 percent (Libor). Pakistan gets $4.5bn facility
Minister for Economic Affairs Makhdum Khusro Bakhtyar, who was also present at the signing ceremony, praised the ITFC’s support for Pakistan, saying that the finance commitment indicates foreign financial institutions’ faith in the country’s economy. The minister emphasized the importance of the ITFC-Pakistan collaboration, stating that ITFC funding for oil and LNG imports has been essential in the resurgence of Pakistan’s industrial sector.
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