China has given approval for the rollover of $2 billion State Administration of Foreign Exchange (SAFE) deposits for a year. Pakistan’s Finance Minister, Ishaq Dar, confirmed, stating that the rollover was a requirement of the International Monetary Fund (IMF).
The IMF had requested the rollover of Chinese SAFE deposits to fulfill external financing needs and move towards a staff-level agreement. The agreement involves filling nine tables under the Memorandum of Economic and Financial Policies (MEFP), including a table related to the Net International Reserves (NIR) as an indicative target.
This target cannot be met without incorporating the external financing needs of the program period until the end of June 2023. The IMF has asked Pakistan to bridge the gap of $6 billion to ensure its credibility and avoid default. This condition was put forth largely because representatives of Gulf countries on the Executive Board had made commitments before the approval of the seventh and eighth reviews for providing financial assistance to Islamabad in various forms.
Now, the IMF is seeking the support of Saudi Arabia, the UAE, and Qatar to help Pakistan’s struggling economy. The Fund has warned Islamabad that its credibility would be at stake if the staff-level agreement is finalised, and Pakistan fails to materialize its commitment from the bilateral partners, which could lead to default.
The IMF is investigating why Pakistan’s bilateral partners are not fulfilling their earlier commitments. China is the only country that has come forward to rescue Islamabad by fulfilling its commitments on the re-financing of its commercial loans as well as the rollover of its SAFE deposits.
