Islamic Trade Finance Corporation to give $600m for item financing

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ISLAMABAD: The International Islamic Trade Finance Corporation (ITFC) — a subsidiary of the Islamic Development Bank — would make available this month about $600 million of syndicated loan for commodity financing.

An official statement said this was conveyed to Pakistan during a virtual meeting between Minister for Economic Affairs Omar Ayub Khan and ITFC Chief military officer Hani Salem Sonbol. “The CEO ITFC updated that the continued syndication is close to complete and $600m are going to be available to Pakistan during this month,” the statement said.

This is a part of the $4.5bn new framework agreement signed by the 2 sides in June this year to finance oil, LNG and fertiliser imports over subsequent three years (2021-23).

The Ministry of Economic Affairs said the ITFC chief also assured the minister that Pakistan remained the highest priority for it to take a position in trade financing and meet country’s POL procurement requirements. The meeting also discussed how ITFC can arrange financing for broader trade activities in Pakistan under commodity financing.

Mr Ayub appreciated ITFC for arranging financing of about $7bn for import oil & LNG from 2008 to 2021 and told Mr Salem that Pakistan’s POL financing requirement was much bigger and therefore the ITFC could enhance its financing from the prevailing $1.5bn annually . The minister also discussed how this financing facility could even be utilised for import of food related commodities.

Mr Salem appreciated Pakistan’s interest in ITFC to satisfy the short-term trade financing needs and encouraged to incorporate other commodities additionally to POL to extend annual financing from $1.1bn under previous arrangement to $1.5bn under current arrangement.

He informed the minister that ITFC had arranged two Warehouse Receipt Financing workshops in Islamabad and Karachi during 2019 together of EAD and depository financial institution of Pakistan and can provide technical assistance for capacity building within the agriculture sector.

The $4.5bn financing signed by two sides in June this year is to be utilised by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for import of petroleum , refined petroleum products and LNG during the years 2021-2023. Within the context of its trade integrated solutions approach, the framework agreement also covers ITFC’s support for trade related technical assistance projects in Pakistan, which can be selected jointly by both parties consistent with the national economic priorities and development plan of Pakistan.

The agreement also requires identification of other areas of cooperation at country and regional levels and to reinforce and promote trade, trade capacities of relevant state authorities and financial institutions and trade cooperation within the country.

The ITFC had also committed in April 2018 an identical financing line for Pakistan for 2018-20, but utilisation finally couldn’t cross $3bn as private refineries were unable to import crude under the power which mostly remained limited to Parco and to some extent to PSO.

Pakistan’s oil import bill has amounted to about $11.4bn last financial year but has been rising in recent months due to increasing trend within the international oil prices. ITFC may be a member of the Islamic Development Bank Group and provides trade financing to member countries after producing funds from financial institutions within the Middle East . The sources said Pakistan had last year signed a $1.1bn trade financing facility for the present year which couldn’t be fully utilised thanks to lower oil international oil prices, depressed demand in Pakistan and limitations of the refineries in availing Arabian Crude. The financing is generally 2 to 2.3pc plus London Inter-Bank Offered Rate (Libor).

ITFC had a limited portfolio of a few billion dollars of its own and normally arranged funds from other private financial institutions. a number of the opposite major recipients of the ITFC’s trade facility are Indonesia, Egypt and Bangladesh. the power is predicted to supply relief in oil and gas import bill and ease pressure on exchange reserves. Under the power , funds don’t inherit Pakistan’s account but ease pressure on exchange reserves.

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