Pakistan Trying to Get IsDB Financing, Revive Saudi Oil Facility

Pakistan is exploring two options now, including securing syndicate financing from the Islamic Development Bank (IsDB) and making a last-ditch effort to convince Riyadh for provision of the Saudi Oil Facility (SOF), after the IMF raised a red flag about the possibility of SOF.

Prime Minister Shehbaz Sharif has made several visits to the Kingdom of Saudi Arabia (KSA) since assuming power in recent months, but has not yet firmed up the Saudi Oil Facility (SOF). In another effort, the KSA may consider the SOF for next 12 months from January or February 2025.

Islamabad is likely to make a formal request to the IsDB’s ITFC [International Islamic Trade Finance Corporation] arrangement for jacking up its financing for procurement of oil from $400 million to $1 or $1.2 billion depending upon the offered rates for enhanced loan facility.

Also See: Pakistanis welcome Aramco’s new Islamabad outlet

Potential Costs and Implications of ITFC Financing

The syndicate financing facility from ITFC might prove expensive. It would be tied to the Secured Overnight Financing Rate (SOFR), which currently stands at 4.59 percent, plus additional charges. It’s difficult to determine the exact rate for the upcoming facility. However, there are chances that the rate could rise to around 9 to 10 percent once all charges are included. The SOFR is a measure of the cost of borrowing cash overnight using treasury securities as collateral. Transaction data in the US treasury repurchase market calculates it.

Sources said Pakistan had already availed the oversubscribed ITFC facility. Pakistan received around $267 million, exceeding the expected installment of $200 million. Earlier, the IsDB had agreed to extend financing of $400 million to Pakistan. However, Pakistan has now formally requested the IsDB to enhance the facility to $1.2 billion. When contacted last week for comments, Minister for Economic Affairs Ahad Cheema stated, “Both options are open.” He was responding to a query regarding the SOF or ITFC from IsDB.

This news is sourced from The News and is intended for informational purposes only.