Saudi Crown Prince Mohammed Bin Salman has directed authorities to study augmenting the Gulf Kingdom's investments in Pakistan to reach USD 10 billion and increasing its deposit to the cash-strapped country's central bank to USD 5 billion, a media report said on Tuesday. Pakistan's economic situation is facing severe headwinds with inflation being forecast to stay high between 21-23 percent and the country's fiscal deficit widening by more than 115 percent in the first four months (July-October) of the current fiscal year.
"The Crown Prince has directed to study augmenting the Kingdom of Saudi Arabia’s investments in the sisterly Islamic Republic of Pakistan which have previously been announced on August 25 last year to reach USD 10 billion," the state-run Saudi Press Agency reported. It added that Prince Mohammed has also directed the Saudi Development Fund (SDF) to study increasing the amount of the deposit provided by the Gulf Kingdom in favour of Pakistan's central bank which had previously been extended on December 2, 2022 to hit a USD 5 billion ceiling.
This came within the framework of the existing communication between the Crown Prince and Pakistan Prime Minister Shehbaz Sharif. The development comes as Pakistan Army Chief General Asim Munir concluded his week-long visit to Saudi Arabia during which he held a meeting with the Crown Prince and discussed ways to improve ties between the two countries.
Saudi Arabia's decision to fund Pakistan
In 2021, the State of Bank of Pakistan (SBP) signed an agreement with the SDF to receive USD 3 billion, which would be placed in the central bank's account with an aim to improve its foreign exchange reserves, Dawn newspaper reported.
Subsequently, the SDF in September last year confirmed the rollover of a USD 3 billion deposit for one more year. The deposit was set to mature on December 5, 2022, however, Saudi Arabia on December 2 had extended its term. In the last week of October 2021, Saudi Arabia agreed to revive its financial support to Pakistan, including about USD 3 billion in safe deposits and USD 1.2 billion worth of oil supplies on deferred payments.
The agreement was reached during the visit of former prime minister Imran Khan to the Gulf Kingdom the same month. Saudi King Salman had in August last year directed his government to invest USD 1 billion in Pakistan 'in confirmation of the kingdom's support of the Pakistani economy' and its people. The directive from King Salman had come a day after the Qatari government said it would invest USD 3 billion in Pakistan.
Saudi Arabia and the UAE had earlier indicated providing USD 1 billion each in oil purchase financing. Later in October 2022, Prime Minister Sharif said Crown Prince Mohammed would soon be visiting Pakistan during which he would announce a USD 10 billion investment for establishing an oil refinery in the country.
However, the planned visit was later postponed for unexplained reasons. Pakistan is currently in the midst of a severe cash crunch, with foreign exchange reserves in the State Bank of Pakistan’s (SBP) depleting to an eight-year low of USD 5.576 billion during the week ending on December 30, 2022. This decline left no space for the government to pay back its foreign debts without borrowing more from friendly countries.
Foreign debt servicing is the most troubling question for the Pakistan Muslim League-Nawaz (PML-N)-led coalition government which is facing a serious threat of default. Several attempts to restart talks with the International Monetary Fund (IMF) for the release of the next tranche have so far remained unfruitful. The falling reserves have already deeply devalued the local currency against the US dollar and other major currencies.
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