With poor utilization of the previous $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 existing year.
According to an official statement released after the signing ceremony, ITFC will mobilise trade financing of $1.1bn during the year 2021 under the Annual Financing Plan.
Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) will make use of the financing that will be made available through this facility to import crude oil, refined petroleum products and LNG during the year 2021 and help build up the country’s foreign reserves and provide resources to meet the oil import bill.
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The official documents confirming the deal were 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 which aims to develop and expand intra-Organisation of Islamic Cooperation trade.
While agreeing to secure another three-year financing framework agreement, the two sides also decided to include agricultural commodities including DAP fertiliser from existing pipeline of oil products and liquified natural gas to the plan.
The next financing framework would be put up for approval at the annual meetings of the Islamic Development Bank in June.
Almost one-third of the $4.5bn package signed by the two sides in April 2018 to cover oil and LNG imports over a period of three years (2018-2020) could not be utilized by the government. The total utilization in three years ending December 2020 was worth $3bn.
The annual utilisation, unfortunately could not exceed $900 in the first two years while third year utilisation only surpassed $1bn.
Prior to the 2018-20 framework agreement, the ITFC had offered about $3.2bn trade financing facility of similar tenure to Pakistan largely covering crude oil and some petroleum products.
Before 2018, Pak-Arab Refinery was the only firm eligible for ITFC’s financing. It was made available to Pakistan State Oil in 2018, and last year Pakistan LNG Ltd was also included in the arrangement for the first time.
Through this facility, the funds don’t come into Pakistan’s account but relieve pressure on foreign exchange reserves along with financing its oil and gas import bill. These funds would be used to finance 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 was also present at the signing ceremony lauded ITFC’s support for Pakistan and said that the financing commitment reflects the confidence of international financial institutions in Pakistan’s economy. The minister highlighted the significance of the partnership between ITFC & Pakistan and stated that the ITFC financing for import of oil and LNG has been instrumental in the revival of the industrial sector in Pakistan.
1. I thank & appreciate @ITFCCORP to mobilize trade financing of USD 1.1bn with Pakistan.This facility will be utilized by PSO ,PARCO & PLL for import of crude oil, refined petroleum products & LNG during the year 2021 & augment foreign currency reserves of the country. pic.twitter.com/sp9uwL3qMJ
— Makhdum Khusro Bakhtyar (@KhusroMakhdum) February 24, 2021
Chief Executive Eng Hani Salem Sonbol underscored the long-standing cooperation between ITFC and Pakistan since creation of the ITFC in 2008. Pakistan is the second largest beneficiary of ITFC financing, he remarked. He guaranteed that ITFC will continue its support to meet the financial needs of Pakistan for import of crude oil, petroleum products and LNG.
Both sides agreed to enhance the portfolio including agricultural sector, said a statement.