On Tuesday, Pakistan’s finance minister, Ishaq Dar, tweeted that the Asian Infrastructure Investment Bank (AIIB) has transferred $500 million to the State Bank of Pakistan (SBP).
The AIIB transferred $500 million in program funds to the State Bank of Pakistan today, in compliance with the board’s decision.
Furthermore, Pakistan would get the funds as co-financing for a development program, as stated by the finance minister the previous month. The Building Resilience through Active Countercyclical Expenditures Programme, funded by the Asian Development Bank (ADB), aims to mitigate the social effects of the economic crisis.
ADB and Pakistan reached an agreement under which Pakistan will receive a $1.5 billion loan for budgetary support as well as aid with flood-related rehabilitation and reconstruction projects. The government‘s $2.3 billion countercyclical development spending program, designed to mitigate the consequences of external shocks such as Russia’s invasion of Ukraine, was partially supported by a BRACE Program loan.
The $1.5 billion loan was meant to increase employment for people affected by devastating floods and disruptions in the global supply chain, while also improving food security and social protection. The State Bank later said that it had received $1.5 billion from the ADB “as disbursement of policy-based loan for the government of Pakistan.”
On his Twitter account, Ishaq Dar also shared a graph depicting the expected default likelihood in emerging markets (One-year probability of default). To combat rising inflation and generate “higher growth on a more sustainable base,” the central bank unexpectedly raised its benchmark policy rate by 100 basis points to a nearly two-decade high of 16%, confounding strong market expectations for a stay-the-course stance.
The SBP raised its prior projection of average inflation for the current fiscal year 2023 from 18-20% to 21-23%. Following the completion of its monetary policy meeting, the SBP issued a statement.
This rate hike is meant to keep growing inflation at bay and to decrease threats to financial stability, paving the way for greater development on a more sustainable basis.
The AIIB’s inflow today comes as there is growing concern about Pakistan’s ability to meet its external financial needs, considering that the country is in the midst of an economic crisis and is still recovering from terrible floods that killed over 1,700 people. Pakistan’s central bank reserves were at $7.8 billion as of November 18, barely enough to cover one month’s worth of imports.
SBP Governor Jameel Ahmad, on the other hand, remarked that he expected external funding obligations to be met on time due to inflows from foreign lenders. He proclaimed that the country will repay a $1 billion international bond on December 2, three days ahead of schedule.
According to two analysts present, Ahmad indicated that the bond repayment is $1.08 billion and is due on December 5. The governor noted that money for this purpose have been secured from bilateral and multilateral sources, including the $500 million from the AIIB that Pakistan received today. This was done to ensure that the repayment had no effect on the country’s foreign exchange reserves.