Stock exchange blooms as Saudi Arabia announces $3.2 billion of oil on deferred payments
- Pakistan stock market witnessed an increase of 1195 points, says Kamran Khan.
- A sustainable change is expected in Pakistan Stock Market after continuous deliberations of nine months.
- The current account deficit of Pakistan narrows to 30 percent.
- Pakistan will receive $3.2 billion of oil from Saudi Arabia on deferred payments.
- SBP increases the interest rate up to 1.5 percent in its latest policy statement.
Saudi oil will lessen the pressure on foreign exchange reserves of Pakistan
The oil facility that was announced by Saudi Arabia in November last year will become operational from July 1 coinciding with the start of new fiscal policy. There have been several regulatory issues that delayed the facility to become operational. This inflow of liquidity will relive the pressure on Pakistan’s exchange reserves. The announcement regarding the provision of Saudi oil was done by Dr. Abdul Hafeez Shaikh through his newly made twitter account.
2./ From 1st July 2019 KSA is activating the deferred payment for petroleum products facility of US$ 275mn per month amounting to US$3.2 Billion per year for 3 years. This will strengthen Pakistan's Balance of Payments position.
— Dr. Abdul Hafeez Shaikh (@a_hafeezshaikh) May 22, 2019
Saudi Arabia will activate its deferred payment for petroleum products facility of $275 million per month for three consecutive years, says Dr. Abdul Hafeez Sheikh in a tweet. He further says that I would like to thank the Crown Prince, His Highness Muhammad Bin Salman for the continuous support to the people of Pakistan.
State Bank of Pakistan specifies the interest rate
Pakistan’s interest rate decisions are taken by the State Bank of Pakistan. SBP increases the interest rates by1.5 percent, says Kamran Khan. The benefit of the increase in the interest rate is that it is used to slow down inflation and protect the currency. Although this increase was significantly high, this help removes the atmosphere of uncertainty from the market. “The atmosphere of uncertainty is now removed from the economy of Pakistan and a positive change is expected from now onward”, says Minister of State for Revenue Hammad Azhar.
“The oil prices are increasing in the international market and this rises Pakistan’s expenses on imports. The expenditures on imports create a burden on the economy”, he further says. The liquidity support by KSA will solve the crises of the country’s foreign exchange reserves, says Hammad Azhar while talking to Kamran Khan. The government continues to follow the strategy to attract more foreign direct investment, sales of assets and other methods to ensure the continued financial stability.
Pakistan stock market gains
Pakistan’s Stock market showed a benchmark increase in the KSE Shares index by 1195 points. The value of the country’s shares is increasing and this is expected to bring about a positive change in Pakistan stock market.
Over the past two years, the prices of shares of many big companies like Maple Leaf Cement Factory, D.G. Khan Cement Factory, Pakistan State Oil, etc saw a continuous fall in the value of shares. Similarly, the value of shares of Angro-foods, Honda Atlas and Hascol Petroleum Limited is continuously falling from Rs 201, 681, 354 to 47, 137 and 71 rupees respectively over the past two years. The shares of Maple Leaf touches the lowest rates of 21 rupees as of May 22, 2019.
The regular fall in the value of shares creates an opportunity for foreign investors, depicts Kamran Khan in a report. Pakistan’s stock market is inherent to attract foreign investors and they’ll likely to gain the double-digit profit by investing here.
Suggestions for the government
The government should build financial discipline. The input of oil from the Kingdom of Saudi Arabia is limited to three years and we’re not supposed to finance it from the revenue. Pakistan must try to generate the maximum revenue from this inflow of liquidity instead of merely adding it to the country’s reserves, says CEO Shajar Capital Limited in the Kamran Khan show. Pakistan must increase its exports and explore the other methods of revenue generation to avoid the burden of debt repayments in the future, he further said.
What is your take on Saudi Arabia’s deferred oil payments to Pakistan? Will it improve the economic sustainability of Pakistan? Leave your comments below