The United Arab Emirates and Saudi Arabia on Thursday provided Pakistan with a $4 billion lifeline to help it overcome the immediate issue of a sovereign default amid fast-depleting foreign exchange reserves, significant flood damage, and a general slowdown in the economy.
According to two different official declarations, the UAE promised to roll over $2 billion in debt due in the next two months and added an additional $1 billion in support during Prime Minister Shehbaz Sharif’s continuing tour to the emirates.
Separately, in Islamabad, the Saudi Fund for Development (SFD) signed a contract to finance $1 billion in oil imports with deferred payment.
On Thursday, the central bank’s reserves fell to a critical $4.34 billion level, the lowest level since February 2014 and just enough to cover less than one month’s worth of restricted imports.
UAE approves $3 billion in funding; Saudi fund inks $1 billion oil supply agreement
Prior $2 billion loans from the UAE were slated to mature in February and March. With the rollover, the government now has the chance to restart the IMF program over the coming days, gradually rebuild foreign exchange reserves, and lift a strict import quota that has hampered the manufacturing sector and caused a shortage of necessities.
In order to finance oil derivatives worth $1 billion for Pakistan, an agreement on Saudi support was inked in Islamabad by SFD Chief Executive Officer Sultan Abdulrahman Al-Marshad and Government of Economic Affairs Secretary Dr. Kazim Niaz, according to the ministry.
According to the statement, the agreement was a formalization of the Saudi Crown Prince Mohammed bin Salman and King Salman bin Abdulaziz’s orders to support Pakistan through trying times.
Earlier this week, Saudi Arabia announced that it was thinking about increasing its investments in Pakistan to $10 billion and upping its deposit with the country’s central bank to $5 billion from $3 billion. The particulars still need to be worked out.
The strategic agreement agreed on Thursday is a continuation of Saudi Arabia’s assistance to Pakistan in creating a sustainable economy and is intended to support Pakistan’s economy, sector growth, and managing economic obstacles, according to the ministry.
The SFD made agreements to finance oil derivatives in 2019 and 2021 with a value of $4.44 billion, but these agreements could not be completely utilized, according to the report.
“The agreement marks the latest steps taken by the government of Saudi Arabia through the SFD and the Pakistani authorities to enhance development in the country,” the statement said, adding that since its establishment, the SFD had supported more than 40 projects and programs in different development sectors valued at around $1.4bn to finance Pakistan’s energy, water, transportation and infrastructure projects.