By Asif Shahzad
ISLAMABAD (Reuters) - Pakistan has received $2 billion in financial support from Saudi Arabia, Finance Minister Ishaq Dar said on Tuesday, a day before the International Monetary Fund's board is expected to give final approval for a much-needed $3 billion bailout.
Saudi Arabia has deposited the funds with the central bank, Dar said, boosting foreign exchange reserves when Pakistan was left with barely enough to cover a month of controlled imports.
"I thank Saudi Arabia on behalf of the prime minister and army chief," Dar said in a recorded video statement, terming it a "great gesture" from the longtime ally.
The Middle Eastern country pledged the funds in April, but had held off depositing the money with the State Bank of Pakistan until it was sure that the IMF bailout would be forthcoming.
"It reflects the growing confidence of our brotherly countries and the international community in Pakistan's economic turnaround," Prime Minister Shehbaz Sharif said.
Teetering on the cusp of a sovereign debt default, Pakistan secured the $3 billion IMF bailout on the last day of June, though it still needs approval from the IMF board, which is meeting on Wednesday.
Under the nine-month arrangement, Pakistan will receive about $1.1 billion upfront and the IMF will stagger disbursements of the rest.
The IMF deal will unlock more bilateral and multilateral financing in addition to the money from Saudi Arabia, and Dar has said that he expects Pakistan's foreign exchange reserves to rise to $15 billion by the end of this month.
Credit rating agency Fitch on Monday upgraded Pakistan's sovereign rating to CCC from CCC-, with the bailout bringing some relief to investors in the country's stocks and bonds.
Its sovereign dollar bonds on Tuesday rallied as much as 1.8 cents, according to Tradeweb data, after the Saudi assistance was announced.
Shorter-dated bonds enjoyed the biggest gains, with the 2024 issue rising to 77.75 cents on the dollar, having gained almost 30 cents from late-June lows.
Pakistan's bonds have had a stellar rally since the heavily indebted nation secured the IMF deal.
Sharif's coalition government, which is due to face a national election later this year, has to undertake more painful fiscal discipline measures to satisfy the IMF, and the central bank has raised its policy interest rate to a record high of 22% while ordinary Pakistanis struggle with inflation running at about 29%.