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KARACHI: The Central Bank of Pakistan has announced that the Saudi Development Fund will extend a $3 billion deposit currently held in the bank’s accounts by one year, which financial experts say has boosted investor confidence in the South Asian economy could strengthen.

The State Bank of Pakistan signed the US$3 billion deposit agreement with the SFD in November 2021, which was designed to help shore up Pakistan’s foreign exchange reserves, which stood at US$8.6 billion as of September 9.

SBP took to Twitter to announce the extension on Sunday, saying it reflects an “enduringly strong and special relationship” between Pakistan and Saudi Arabia.

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“The Saudi Fund for Development (SFD) has confirmed the extension of a $3 billion deposit maturing on December 5, 22 for one year,” the central bank wrote on Twitter.

The South Asian country only has enough to cover 40 days of import payments. In recent months, the rupee has fallen to historic lows against the US dollar and remains under pressure on rising demand for food and oil imports.

Experts say the SFD rollover will give Pakistan some breathing room, whose economy is struggling to stabilize and is at risk of defaulting. The country is also facing the burden of catastrophic floods that have caused billions of dollars in damage, affected 33 million people and killed over 1,500 Pakistanis.

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“The extension has definitely improved investor confidence and the country’s debt maturity profile, as we now have another year to spare,” Samiullah Tariq, research director at Pakistan Kuwait Investment Co., told Arab News on Monday.

“Market sentiment will continue to improve with more rollovers, which would be reflected in the country’s credit default swap and bond yields in the coming days,” he added, referring to expected China and UAE loan rollovers.

The Saudi rollover “will change sentiment in the forex market” and lead to the rupee strengthening against the dollar, Zafar Paracha, secretary-general of the Exchange Companies Association of Pakistan, told Arab News.

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The latest development also shows Saudi Arabia’s support and is part of the kingdom’s long-term engagement with Pakistan, Tahir Abbas, head of research at Arif Habib Ltd., a Karachi-based brokerage firm, told Arab News.

“The rollover is a great help Saudi Arabia is giving to Pakistan as part of its long-term economic relationship,” Abbas said.

“Saudi support is vital to Pakistan as the deposits linked to the oil import deferrals play a critical role in our foreign exchange reserves and currency stability.”

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