Saudi help shot in arm for Pak economy

Package covers rollover of $3 billion deposit, $1.2 billion oil credit

By Staff Reporter

ISLAMABAD: Saudi commitments of help aggregating to $4.2 billion following Prime Minister Shehbaz Sharif’s visit to the Kingdom have come as a shot in the arm at a difficult time for Pakistan’s battered economy.

“The Kingdom … affirmed its continuous support to Pakistan and its economy, including the discussion of augmenting the $3 billion deposit with the central bank through term extension or otherwise,” said a joint statement issued Sunday in the wake of Prime Minister Shehbaz Sharif meeting with Crown Prince Mohammed bin Salman.

The two sides say they will discuss rollover of the term of a $3 billion deposit made by the Kingdom with the State Bank of Pakistan (SBP) to help support Islamabad’s dwindling foreign reserves and a widening current account deficit.

Saudi Arabia also pledged “to further enhance the financing of petroleum products” – a very timely offer given how Pakistan’s economy is staggering under the burden of soaring energy prices. Coupled with epic mismanagement by the outgoing government, the problem led last month to several power plants shutting down because of inability to buy fuel, causing partial blackouts across Pakistan.

Pakistan has welcomed the Saudi decision to extend the agreement to finance crude exports and oil derivatives, the statement said but didn’t offer further details.

“Pakistan deeply values the Kingdom’s continued support to Pakistan,” tweeted PM Sharif, adding that the joint statement “ushers in a new era of close cooperation between our two brotherly countries”.

The Kingdom has long been a regular source of financial relief for successive governments in Pakistan. Last October, Saudi Arabia deposited $3 billion with SBP at a 4 percent annual interest under a support package signed by the then Prime Minister Imran Khan. The deposit was a part of a $4.2-billion assistance package to the country. The Saudis also pledged a facility to finance oil derivatives trade worth $1.2 billion during the year.

Pakistan has faced growing economic challenges with sliding foreign reserves, a widening current account deficit, a depreciating currency, and high inflation.

Foreign exchange reserves have dropped to a 28-month low at under $11 billion, barely enough to cover imports for two months, while the current account deficit for the first nine months of the current fiscal year had jumped to $13.17 billion. Stubborn double-digit price inflation jumped to a two-year high of 13.37 percent in April.

The Kingdom support is also opportune as the government is striving to revive a stalled International Monetary Fund (IMF) aid program.

An IMF mission is due to arrive after 7 May to hold talks on the issues around subsidies on petrol and electricity for completing the seventh review of $6 billion Extended Fund Facility. If the IMF review is cleared, Pakistan will get a tranche of more than $900 million.