The aid will increase Pakistan's forex reserves, says Fawad Chaudhry
The federal cabinet has approved the $3 billion loan from Saudi Arabia. The money, which is expected to arrive in the country next week, will be kept in the State Bank of Pakistan.
On Saturday, a summary approving the aid was endorsed by the cabinet members.
“All legal formalities in the transfer of the money have been completed,” Federal Information Minister Fawad Chaudhry tweeted Friday. He said that the loan will increase Pakistan’s foreign exchange reserves to $20 billion.
Under the aid package, Saudi Arabia will offer an oil deferred payments facility of $1.2bn per annum to Pakistan as well. The development was announced last month when Prime Minister Imran Khan met Saudi Crown Prince Mohammad Bin Salman on a visit to the kingdom.
The $3b Saudi deposit would help prop up Pakistan’s foreign reserves that have dropped by $691 million due to external debt repayments.
According to Energy Minister Hammad Azhar, the package will “help ease pressures on our trade and forex accounts as a result of global commodities price surge”.
In the last few days, the value of the Pakistani rupee has depreciated against the dollar taking the greenback to an all-time high of Rs178.30. Experts suggest the Saudi package will ease pressure on rupee and will impact the market positively.
The Saudi Fund for Development would “deposit an amount worth of US$3 billion into the State Bank of Pakistan to help the Pakistani government support its foreign currency reserves and support it in facing the impacts of the coronavirus pandemic,” Saudi Press Agency has revealed.
“In addition, the royal directive was issued to finance the oil derivatives trade with a total amount of US$1.2 billion throughout the year,” it added.
The SFD has underscored that the move was linked to close relations between Pakistan and Saudi Arabia.
It pointed out that “these royal directives confirm the Kingdom of Saudi Arabia’s ongoing stance in supporting the economy of the sisterly Republic of Pakistan.”
It is not the first time that Saudi Arabia would make a large deposit into the State Bank of Pakistan or offer an oil deferred payments facility.
The deferred payment facility began in 1998 when Pakistan faced international sanctions after the nuclear tests.
In 2014, Saudi Arabia deposited $1.5b into Pakistan’s Central Bank to help maintain the balance of payment.
After the PTI came to power in 2018, Saudi Arabia deposited $3b into the SBP. It also opened an oil deferred payment facility worth $3.2b per annum for three years. However, the facility was withdrawn abruptly after nine months in May 2020.
Saudi Arabia also withdrew $1b from the $3b it had deposited with the SBP. Pakistan had to secure a $1b loan from China to repay the Saudis.