Saudi Arabia's USD 6 billion assistance package of loans and deferred payments to Pakistan will immediately relieve pressure on the cash-strapped government and improve its negotiating position during the tough bailout negotiations with the IMF, media reports said Wednesday.
In the deal announced Tuesday after Prime Minister Imran Khan called on Saudi King Salman bin Abdulaziz, Riyadh said it will give Pakistan USD 3 billion in foreign currency support for a year and a further loan worth up to USD 3 billion in deferred payments for oil imports.
Pakistan's Finance Minister Asad Umar recently said the country may need more than USD 12 billion to plug its finances as the current-account deficit widens and foreign-currency reserves plummet.
The Saudi assistance will immediately push the official foreign currency reserves back to double digit in addition to lessening the stress on the external sector.
Saudi Arabia will place USD 3 billion cash deposits with the State Bank of Pakistan, in addition to providing a one-year deferred payment facility for the import of oil, worth up to USD 3 billion, according to the Pakistan Foreign Office.
The cash injection will immediately relieve pressure on the government and improve its negotiating position during the upcoming programme loan talks with the International Monetary Fund (IMF), starting from November 7, the Express Tribune said.
The cash assistance will lower the requirements to devalue the rupee, as the one-off assistance will for the time being improve the macroeconomic projections, the report quoted some independent economists as saying.
The Saudi package may provide breathing space to the government for dealing with economic challenges, but would not be enough to avoid the IMF facility, the Dawn newspaper reported.
It is believed that improved foreign exchange reserves would strengthen Pakistan's negotiating position in talks with the IMF, it added.
The situation could further improve if China also makes some commitments to rescue its 'all-weather friend', it said, noting that Khan is scheduled to travel to China on November 3 for his first visit.
Saudi Arabia agreed to bail out Pakistan during the second visit of the prime minister, as the agreement could not be reached during his September visit to the kingdom, it said.
Prime minister Khan is keen to avoid the IMF bailout package and had requested Saudi Arabia, China and the United Arab Emirates for placement of deposits in the central bank to artificially inflate the foreign currency reserves, it said.
Earlier, Saudi Arabia gave USD 1.5 billion grant in 2014 when Pakistan's economy was facing similar pressures.
Saudi Arabia had also given oil on deferred payments in the 1990s, but Pakistan never repaid the amount, according to the officials of the finance ministry.
Pakistan is in search of USD 12 billion foreign loans and aid to avoid default on international debt obligations, as the country is required to return USD 11.7 billion loans to foreign countries.
After the USD 3 billion cash assistance from Saudi Arabia, the Pakistani central bank SBP's reserves will increase to USD 11 billion. The USD 3 billion oil on deferred payments will lower the overall financing needs by the same amount, which had been earlier estimated at USD 31 billion, the report said.
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