Friday August 12, 2022

Saudi deal

By Editorial Board
May 03, 2022

Saudi Arabia has agreed to discuss an extension of the term of a three-billion-dollar loan. There are also reports about an increase in the existing $4.2 billion assistance package to Pakistan to around $8 billion. This will greatly help the PM Shehbaz government tackle the crippling economic crisis that the PTI government has left behind. Saudi Arabia has historically been generous in its support to Pakistan -- be it cash deposits or oil supply on deferred payments. This new affirmation is likely to augment the $3 billion with the State Bank of Pakistan through term extension. The two countries have also agreed to explore options to enhance the financing of petroleum products. This may also result in supporting economic structural reforms and lead to an expanded package of as much as eight billion dollars. Under the proposed package, Saudi Arabia will extend a $3 billion safe deposit for another one year and extend oil supplies on deferred payment to $2.4 billion a year.

There are also reports about Pakistan issuing Sukuk Bonds worth over $2 billion that the Saudi government will purchase. The economic crisis that Pakistan is facing is multifaceted. If Pakistan manages to actually receive $8 billion, it will be a much-needed financial support to the country. First, it will bolster our dwindling foreign exchange reserves. Pakistan’s economy is also beset by high inflation which has a lot to do with sliding foreign reserves. Then there is a widening deficit in Pakistan’s current account that needs some immediate succour. Coupled with this is also a depreciating currency that must stop its downward slide. Experts have highlighted the fact that Pakistan requires financial assistance of at least $15 billion in the last quarter of this fiscal year which is presently coming to an end. With doubling of the oil financing facility and with some additional money in the coffers coming through Sukuks and rolling over of the existing over four billion facility, Pakistan can weather the storm which is already upon us.

The place Pakistan’s economy is at the moment, such packages play a significant role -- but even more important than this is the need for mutual cooperation in other areas too such as agriculture, education, employment, investment, and trade. There is the Saudi-Pakistani Supreme Coordination Council that now must work to diversify the scope of bilateral relations. As the two countries are working out some technical details, it may take a month or so before Pakistan can actually claim to be on a secure perch economically. The technical-level talks will be crucial as there may be some strings attached, the details of which may or may not become public anytime soon. It is worth recalling that in December last, Saudi Arabia had provided $3 billion deposits to the State Bank of Pakistan. Then in March this year, the Saudi oil facility was also operationalized to offer Pakistan $100 million to procure oil. With this new deal almost in place, there is no room for complacency; begging and borrowing for long is neither advisable nor does it bring any respect internationally. The new government must try to use the new facilities as a stepping stone to higher goals of economic independence.