Saudi Arabia gave Pakistan a US$6-billion bailout package on Tuesday to help its close ally address its dire economic crisis.
A Memorandum of Understanding (MoU) was signed between Pakistan Finance Minister Asad Umar and his Saudi counterpart Muhammad Abdullah Al-Jadaan. It confirmed that $3 billion will be deposited by Saudi Arabia as a “balance of payment support”, with another $3 billion will be used for oil import payments.
The agreement came on the sidelines of the Future Investment Initiative (FII) Conference in Riyadh, which Prime Minister Imran Khan addressed on Tuesday, underscoring Pakistan’s efforts in “trying to create an enabling environment for investment.”
On Monday, media attention was focused on which countries and companies would attend the conference, given the huge controversy over Saudi Arabia’s involvement in the killing of journalist Jamal Khashoggi in Istanbul. The Pakistani PM said the murder of Khashoggi was “shocking” and “sad beyond belief”.
But he said his country could not afford to snub the Saudis over the murder because it was facing “the worst debt crisis in our history”.
“Unless we get loans from friendly countries or the IMF [the International Monetary Fund] we actually won’t have in another two or three months enough foreign exchange to service our debts or to pay for our imports. So, we’re desperate at the moment,” Khan said.
Khan’s statement was an admission of Pakistan’s dire need for financial support given the country’s dire economic position when he took power. Diplomatic sources later confirmed that the Pakistani delegation reaffirmed their support to Saudi Arabia during their crisis.
“Prime Minister Imran Khan has conveyed Pakistan’s position to both King Salman bin Abdul Aziz and Crown Prince Mohammad bin Salman, maintaining that Saudi Arabia is the most important state for Pakistan, and that we stand with it,” a senior diplomat told Asia Times.
Saudi Arabia has already conveyed to Pakistan that in addition to military support it wants vocal backing for the Islamic Military Counter-Terrorism Coalition, which has been accused of being aligned against Iran. Meetings on the sidelines of this week’s conference in Riyadh suggest that Islamabad will also have to take the side of Saudi Arabia in its row with Turkey over the Khashoggi killing.
The rupee hit an all-time low against the US dollar earlier this month, amidst a balance of payment crisis, but the economic benefits of the Saudi package should be clear. However, the diplomatic price that Islamabad will have to pay has generated skepticism.
“Saudi Arabia’s real need for Pakistan is in its confrontation with Iran and Qatar and the war in Yemen. If Khan doesn’t take a stronger stand in favor of Saudi positions in the region, it is unlikely that his gesture of showing support amidst the Khashoggi affair alone will prove sufficient for Saudi Arabia,” former Pakistan ambassador to the US Husain Haqqani said to Asia Times.
“Pakistan’s economic crisis is too big to be resolved by Saudi financing alone. $3 billion is only a quarter of the $12 billion currently needed though it might help in negotiations with the IMF,” he said.
Pakistan has already formally requested a loan from the IMF and an IMF team is set to visit Pakistan on November 7 to discuss the terms. The Saudi package will help Pakistan negotiate conditions with the Fund, and the rupee’s plunge is an offshoot of one of the preconditions for the IMF bailout package.
Khan to visit China shortly
Pakistan is also hoping it will be able to get some funds when Imran Khan visits China during the first week of November. The IMF has expressed concern about Chinese debt that Pakistan has accumulated due to the China-Pakistan Economic Corridor to Gwadar port. The Khan government has already told Beijing it wants to renegotiate terms in regard to CPEC.
Meanwhile, some critics have argued that the $3 billion lent by Saudi Arabia as a balance of payment support won’t be as useful to the country if it’s merely a deposit in the State Bank of Pakistan.
“If it’s just a deposit that can’t be used, you cannot pay off the imports bill through dollars that are somebody else’s unless they are cashed and converted into rupees. But yes, it will help Pakistan in terms of dollar parity and the stock market,” the Pakistan Muslim League-Nawaz (PML-N) government’s outgoing finance minister Rana Afzal Khan told Asia Times.
“The deferred payment for oil is a good development as well. But with our oil imports [the deferred payments] are only worth a couple of months. An $18 billion trade deficit means $1.5 billion per month,” he said.
And while Rana Afzal Khan acknowledged the financial benefit, he believed the diplomatic cost the country will have to pay is too high.
“Let’s get one thing clear, [the deal with Riyadh] is not because of PTI or Imran Khan, it is owing to the relationship between Saudi Arabia and Pakistan. The requirements of Saudi Arabia as part of the deal would be a big question mark. What have we given in return?
“Saudi Arabia has its military requirements and there is a level of trust in the Pakistan Army, but [the ongoing standoff] is going to become another troubled area for Pakistan. All these issues must come to the parliament.”
But the former finance minister was critical of the PTI government’s dealings with Turkey. “The current government has totally ignored Turkey, which is most undiplomatic. Turkey does not need us, we need Turkey. The PML-N government had great relations with Turkey, which Imran Khan seems to be damaging – he started badly with China, he did similarly with Saudi Arabia and now he’s alienating Turkey.”