Dubai, UAE – Pakistan secured a $4 billion lifeline from the UAE and Saudi Arabia on Thursday to help it navigate the immediate challenge of a sovereign default amid rapidly dwindling foreign exchange reserves, massive flood damage, and an overall economic slowdown.
In two separate official announcements, the UAE agreed to roll over $2 billion in debt due over the next two months, with an additional $1 billion pledged during Prime Minister Shehbaz Sharif’s ongoing visit to the emirates.
The Saudi Fund for Development (SFD) signed an agreement in Islamabad to fund $1bn worth of oil imports on deferred payment.
Pakistasn central bank’s reserves dropped to a critical level of $4.34bn on Thursday, the lowest since February 2014 and barely enough to finance less than one month of controlled imports.
The UAE’s previous $2 billion loan was due to be repaid in February and March. The rollover now gives Pakistan the opportunity to restart the IMF programme in the coming days, gradually rebuild foreign exchange reserves, and end a tight import control that has crippled the manufacturing sector and caused a shortage of essential items.
The agreement on Saudi support was signed in Islamabad by SFD Chief Executive Officer Sultan Abdulrahman Al-Marshad and Ministry of Economic Affairs Secretary Dr Kazim Niaz to finance oil derivatives worth $1bn to Pakistan.
It said the agreement was a formal implementation of the directives from Saudi King Salman bin Abdulaziz and Crown Prince Mohammed bin Salman to support Pakistan in difficult times.
Earlier last week Saudi Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud directed his government to study increasing Saudi Arabia’s investments in Pakistan, which were earlier announced on August 25, 2022, to $10 billion.
Mohammed bin Salman also directed the Saudi Development Fund (SDF) to study raising Saudi deposits in Central Bank of Pakistan (CBP) to $5 billion.
In December last year, the kingdom had extended the term of a $3 billion deposit to boost foreign currency reserves and help Pakistan in overcoming economic repercussions of the coronavirus pandemic and the floods.
The Saudi government will “continue to support Pakistan as much as we can,” Finance Minister Mohammed Al Jadaan said at a press conference in Riyadh in December last year.
“This confirms the Kingdom’s position supportive to the economy of the Islamic Republic of Pakistan and its sisterly people,” Saudi Press Agency said.
The announcement comes a day after Chief of Army Staff General Asim Munir — who was on a week-long official visit to Saudi Arabia and UAE — held a meeting with Prince Salman in Madina and discussed ways to improve bilateral ties between the two countries.
In the last week of October 2021, Saudi Arabia had agreed to revive its financial support to Pakistan, including about $3bn in safe deposits and $1.2bn worth of oil supplies on deferred payments.
The agreement was reached during the visit of former prime minister Imran Khan to the kingdom the same month.
The Saudi king had in August last year directed his government to invest $1bn in Pakistan “in confirmation of the kingdom’s support of the Pakistani economy” and its people.
The directive from King Salman bin Abdulaziz had come a day after the Qatari government said it would invest $3bn in Pakistan.
Saudi Arabia and the UAE had earlier indicated to provide $1bn each in oil purchase financing.
Later in October, Prime Minister Shehbaz Sharif said Saudi Crown Prince Mohammed bin Salman bin Abdulaziz Al-Saud would soon be visiting Pakistan during which he would announce a $10bn investment for establishing an oil refinery in the country. However, the planned visit was later postponed for unexplained reasons.