Revived but reduced Saudi economic cooperation

Saudi Arabia has been a great friend and supporter of Pakistan, both at international forums as well as provider of economic assistance in the hour of need.

In August 2018, Imran Khan, after assuming office of PM, declared his preference to seek support from friendly countries instead of going to IMF for negotiating a reforms programme which would give PTI government a financing of $6 billion over a period of three years. With handholding and backing of Army chief General Qamar Javed Bajwa, Saudi Arabia announced an economic package of $6 billion comprising of $3 billion as deposit with State Bank of Pakistan (SBP) and $3 billion in shape of oil deferred payment facility to Pakistan. UAE and Qatar too joined in to lend further support by placing deposits of $2 billion and $500 million respectively with the SBP. In addition, PTI government subsequently also used $3 billion Chinese trade financing facility to shore up the forex reserves with the SBP.

However, PTI government later chose to engage IMF for obtaining the Fund programme for $6 billion facility regarding which Imran Khan, before General Elections 2018, pledged publicly to the nation that he would prefer committing suicide over going to the IMF for financing facility.

On the sidelines of the UN General Assembly annual meeting, Imran Khan announced with Turkish President Tayyip Erdogan and Malaysian Prime Minister Dr Mahathir Muhammad to jointly hold an Islamic Summit which was fixed to be held in Kuala Lumpur in 2019. This surprise move annoyed Saudi Arabia and UAE, who viewed it as a threat to the unity of the Muslim world. Consequently, Saudi Arabia withdrew $2 billion of the $3 billion deposit with SBP in addition to terminating the oil deferred payment facility.

Pakistan’s forex reserves have been dropping for five consecutive weeks and Pak rupee has been worst performing Asian currency in the last six months as tracked by the Bloomberg. Imran Khan’s three-days visit to Saudi Arabia this week made it possible for the Kingdom to announce partial revival of the 2018-Saudi $6 billion economic assistance which has been hailed by Imran Khan via below Twitter post on 27th October:

“I want to thank HRH Prince Mohammad bin Salman for supporting Pak with $3 bn as deposit in Pak’s central bank & financing refined petroleum product with $1.2 bn. KSA (Kingdom of Saudi Arabia) has always been there for Pak in our difficult times incl now when world confronts rising commodity prices.”

Good news that existing Saudi deposit with SBP of $1 billion will be topped up by $2 billion to revive it back to $3 billion; bad news that oil deferred payment facility has been reduced from $3 billion to $1.2 billion. In summary, 2018-Saudi economic assistance package for Pakistan stands revived but reduced from $6 billion to $4.2 billion.

We would now reflect on the past cooperation of Saudi Arabia with Pakistan on the economic front, particularly in 1998 and 2014 during PMLN tenures with Nawaz Sharif as prime minister of Pakistan.

Following Indian nuclear detonation, which created security imbalance in the South Asia region together with changed tone and tenor of her leadership, PMLN government under the leadership of Nawaz Sharif got successfully tested on 28th May, 1998 Pakistan’s nuclear capability by detonating the devices despite repeated requests of the world leaders for exercising the restraint. This brilliant move made Pakistan, with God’s grace, a nuclear State and restored the regional security balance and peace.

Resultantly, the global community imposed economic sanctions on Pakistan, as anticipated, including the suspension of ongoing IMF programme. PMLN government dealt with the consequential challenges without having any shortages of essential commodities or related crisis which are generally seen in sanctions-ridden countries. Saudi Arabia at that juncture came up with a big help by committing $2 billion free of cost oil facility to Pakistan over a period of 2-3 years, as a gift.

PMLN planned to use the rupee sale proceeds of the Saudi gifted oil to develop the Gwadar Port and allied facilities which was announced in the Federal Budget for 1999-2000 presented in the Parliament by the author on 12th June, 1999. Regrettably, martial law was imposed by General Musharraf in the country on 12th October, 1999 which caused long delay in the development of this premium project till next tenure of PMLN 2013-18 with phenomenal increase in its cost.

Months before General Elections (GE) in May 2018, Pakistan was declared globally macro-economic unstable with prediction of sovereign default by early 2014, regardless of which political party would win the GE. The country was also facing 18 hours of loadshedding as well as terrorism incidents. In June 2013, PMLN government with Nawaz Sharif as prime minister was sworn in. Saudi Arabia donated in February 2014 an amount of $1.5 billion, equivalent to Rs157.19 billion (at $/Rs 104.80) as unconditional gift to Pakistan with which PMLN government had set up “Pakistan Development Fund” (PDF) account with the SBP for the purpose of boosting the ongoing development works in various sectors including energy, infrastructure, communication and transport in order to accelerate the growth (GDP), lower inflation, reduce poverty, create jobs and raise per capita income of the people.

Sponsored criticism, as to the hidden terms for the Saudi amount received, was unleashed in the media against the aforesaid donation of $1.5 billion in 2014 despite a public clarification by the author that the amount was an unconditional gift from the friendly country to the people of Pakistan. PTI’s Imran Khan too actively participated in this negative campaign and even months later released below message on PTI’s Twitter account:

“It is so shameful that we have to go to Saudis or US to help us, says Imran Khan.”

To conclude, the key difference between Saudi economic assistance during PTI tenure 2018/2021 and in PMLN two tenures 1998 and 2014 is that current transactions are more of commercial nature carrying repayment terms of both deposit and oil deferred payment facility whereas the two transactions in 1998 and 2014 were Saudi unconditional gifts to people of Pakistan with no strings attached. All and sundry should avoid debating publicly which create negativity about such gestures of economic cooperation by a time tested friendly country.

The author, a UK Fellow Chartered Accountant, is former finance minister of Pakistan and former leader of Opposition in the Senate of Pakistan. Twitter: @MIshaqDar50