With sub-optimal utilisation of earlier $4.5 billion worth of three-year financing framework, Pakistan and the International Islamic Trade Finance Corporation (ITFC) on Wednesday signed a $1.1bn trade financing facility for the current year.
Under the Annual Financing Plan, “ITFC will mobilise trade financing of $1.1bn during the year 2021”, said an official statement after the signing ceremony. The financing available through this facility will be utilised by the Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for the import of crude oil, refined petroleum products and LNG during the year 2021 and help augment foreign currency reserves of the country and provide resources to meet the oil import bill.
The document was signed by Economic Affairs Division Secretary Noor Ahmed and ITFC’s Chief Executive Officer Eng Hani Salem Sonbol.
ITFC is a subsidiary organisation of the Islamic Development Bank Group.
On the sidelines of the signing ceremony, the two sides also agreed to firm up another three-year financing framework agreement while expanding the scope of the plan to also include agricultural commodities including DAP fertiliser from existing pipeline of oil products and liquefied natural gas. The next financing framework would be taken up for approval at the annual meetings of the Islamic Development Bank in June.
The government could not utilise almost one-third of the earlier package for three years that expired on Dec 31, 2020. Total utilisation in three years ending December 2020 amounted to about $3bn. The $4.5bn package was signed by the two sides in April 2018 to cover oil and LNG imports over a period of three years (2018-2020) at the rate of about 1.5 per cent per annum.
The annual utilisation, however, did not cross $900 million in first two years while third year utilisation just went past $1bn.
The facility had formally become effective on July 1, 2018, when it rolled over about $100m loan. Before the 2018-20 framework agreement, the ITFC had extended about $3.2bn trade financing facility of similar tenure to Pakistan mostly covering crude oil and some petroleum products. That three-year facility had come to an end in 2017.
Before 2018, the ITFC’s financing was available only to Pak-Arab Refinery which was expanded to the Pakistan State Oil in 2018. Last year, Pakistan LNG Ltd was also included in the arrangement for the first time. ITFC had a limited portfolio of its own and normally arranged funds from other private financial institutions.
Signing of this financing facility will be helpful in financing oil and gas import bill of the country and easing of pressure on foreign exchange reserves of the country. This agreement also reflects confidence of international financial institutions in Pakistan’s economy and its future, a statement issued by the Economic Affairs Division said.
Under the facility, funds do not come into Pakistan’s account but ease pressure on foreign exchange reserves. These funds would be used for financing of letters of credit for oil and LNG imports by PSO, Parco and PLL. The credit facility is subject to about 2.3pc plus London Interbank Offered Rate (Libor).
Minister for Economic Affairs Makhdum Khusro Bakhtyar who witnessed the signing ceremony appreciated ITFC support for Pakistan and said the financing commitments reflected confidence of international financial institutions in Pakistan’s economy. He said the ITFC financing for import of oil and LNG had been instrumental in the revival of the industrial sector in Pakistan.
Chief Executive Eng Hani Salem Sonbol said Pakistan and ITFC had a long-standing cooperation since creation of the ITFC in 2008 and Pakistan was the second largest beneficiary of ITFC financing. Both sides agreed to enhance the portfolio including the agricultural sector, a statement said.