Saudi Arabia Agrees to $6 Billion Aid Package for Pakistan
After Prime Minister Imran Khan’s second visit to Riyadh, Pakistan announced that Saudi Arabia has agreed to a US $6 billion aid package. Saudi Arabia agreed to deposit the US $3 billion as the balance for payment support after the deal was agreed on Tuesday, October 23. Saudi Arabia also agreed to a one-year deferred payment facility for oil imports provided by the Saudis.
Pakistan’s stock market index closed at 3.8 points higher the day after Saudi Arabia pledged aid for the country.
The aid package secured is supposed to alleviate some of the issues Pakistan is facing economically. However, it does not entirely solve the Country’s larger financial crisis.
Pakistan is on the verge of economic crisis as the country’s deficit continues to widen and its foreign reserves plummet. The Country’s foreign reserves have dropped by 40 percent, which is about $81 billion. With a deficit of $18 billion and public sector debt of $75.3 billion, Pakistan has also planned to seek aid from the IMF. This is the second time the country will seek aid from the IMF since 2013, and the thirteenth time since 1980 that the country will be opting for a financial bailout.
The deal between Pakistan and Saudi Arabia was brokered between Pakistan’s Finance Minister, Asad Umar, and Saudi Arabia’s Finance Minister, Muhammad Abdullah Al-Jadaan. Umar had recently explained that Pakistan would need $12 billion to aid its growing deficit.
A spokesperson for the Pakistani finance ministry, Noor Ahmed, explained that the IMF is likely to push for Pakistan to implement large-scale structural reforms which the country has lagged during negotiations. With aid secured from Saudi Arabia, Ahmed is hopeful that this puts Pakistan in a stronger position to negotiate the loan’s terms with the IMF.
A statement released by the finance ministry echoed a similar sentiment, with a focus on investment in social protection, job creation, and human resource development. As well as a focus on government reforms and a restoration of its domestic industry and export sector.
Negotiations between Pakistan and the IMF are set to begin on November 7. Khan has been hesitant to approach the IMF for negotiations. He plans on approaching Pakistan’s allies for aid to lessen the amount the country would request from the IMF.
“Because when the IMF gives you more loans, they apply more strict conditions, which causes more pain to the public. It brings inflation,” explained Khan.
The country is facing increasing economic tensions as its exports have lagged behind the growing cost of imports for the Chinese-financed infrastructure projects planned in Pakistan. Beijing has invested close to $60 billion in infrastructure under the Belt and Road project in Pakistan. Khan will be traveling to China in November to discuss further financial aid.
Khan met with King Salman bin Abdulaziz and crown prince Mohammed bin Salman at the conference. The prime minister has been facing criticism from Pakistani rights activists for attending the Saudi Future Investment Initiative, in the wake of the killing of journalist Jamal Khashoggi. Several other foreign executives and leaders had boycotted the conference. While Khan had denounced the killing of Khashoggi, the stakes are too high to risk the boycotting of the conference.