Asian Infrastructure Investment Bank (AIIB) had transferred $500 million to the State Bank of Pakistan (SBP) Tweeted Finance Minister Ishaq Dar announced on Tuesday.
Asian Infrastructure Investment Bank (AIIB) has transferred today, as per their Board’s approval, to State Bank of Pakistan/Government of Pakistan
US $ 500 million as program financing.
— Ishaq Dar (@MIshaqDar50) November 29, 2022
“AIIB has transferred today, as per their board’s approval, to State Bank of Pakistan Government of Pakistan $500 million as program financing,”
The finance minister had also said the previous month that Pakistan would receive the funds as co-financing for a development program. The Building Resilience with Active Countercyclical Expenditures Programme is an Asian Development Bank (ADB) financing program to counter the social fallouts of economic crisis.
ADB signed an agreement with Pakistan to provide a $1.5 billion loan for budgetary support and help flood-related rehabilitation and reconstruction activities. The loan, provided under the BRACE Programme, was provided to fund the government’s $2.3bn countercyclical development expenditure program designed to cushion the impacts of external shocks, including the Russian invasion of Ukraine.
The $1.5bn loan was aimed to provide social protection, promote food security, and support employment for people amid devastating floods and global supply chain disruptions. The State Bank later announced that it had received $1.5bn from the ADB “as disbursement of policy-based loan for the government of Pakistan”.
Ishaq Dar also shared on his Twitter account the graph of Estimated Default Probability in Emerging Markets (One-year probability of default). However, against strong market expectations for maintaining the status quo, the central bank had surprisingly hiked its key policy rate by 100 basis points to over a two-decade high at 16% to curb the elevated inflation reading and achieve a “higher growth on a more sustainable basis”.
The SBP revised its projection for average inflation reading to 21-23% for the current fiscal year 2023 compared with the earlier 18-20%. SBP announced in a statement issued after the end of its monetary policy meeting.
“This [rate hike] decision is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,”
Today’s inflow from AIIB comes amid growing uncertainty about Pakistan’s ability to meet external financing obligations with the country in the midst of an economic crisis and recovering from devastating floods that killed over 1,700 people. Pakistan’s reserves with the central bank stood at $7.8bn as of November 18, barely enough to cover a month’s imports.
Contrarily, SBP Governor Jameel Ahmad said he expected external financing requirements would be met on time because of inflows from international lenders. He said the country will repay a $1 billion international bond on December 2, three days before its due date.
The bond repayment, which matures on Dec 5, totals $1.08bn, Ahmad told a briefing, according to two analysts who were present. For this purpose, the governor said funding was lined up from multilateral and bilateral sources, one of which was the $500m from AIIB which Pakistan received today, to ensure the repayment would not affect foreign exchange reserves.