According to a joint statement released on Sunday, Pakistan and Saudi Arabia will consider the prospect of “augmenting” the kingdom’s $3 billion deposit in Pakistan’s central bank by extending its duration “or through other possibilities.”
Saudi Arabia put $3 billion in the State Bank of Pakistan (SBP) last year to assist maintain its foreign reserves. The government is in desperate need of external funds, with a huge current account deficit and foreign reserves as low as $10.8 billion.
According to the Saudi state news agency SPA, Pakistan also welcomed Saudi Arabia’s decision to prolong an arrangement to finance crude oil products and oil derivatives exports.
Earlier on Sunday, Finance Minister Miftah Ismail confirmed the Kingdom’s “continuous support to Pakistan and its economy,” which included “discussions of augmenting the $3 billion deposit with the central bank through term extension or otherwise, and exploring options to further enhance the financing of petroleum products, as well as supporting economic structural reforms for the benefit of Pakistan and its people.”
Joint Statement on the visit of PM Shehbaz Sharif to the Kingdom
The Kingdom of Saudi Arabia affirmed its continued support to Pakistan and its economy including the discussion of augmenting the three billion USD deposit with the central bank through term extension or
— Miftah Ismail (@MiftahIsmail) May 1, 2022
Following Prime Minister Shehbaz Sharif’s visit to Saudi Arabia, when he met with Crown Prince Mohammed bin Salman, the development occurred.
During his visit, the Prime Minister met with officials from both countries to explore measures to strengthen economic and trade connections and encourage investment.
“I believe a primary goal of Sharif’s visit would be to restore ties with (Prince Mohammed bin Salman) and define the conditions of what is likely to be a much more commercial cooperation,” said Arif Rafiq, a Pakistan specialist and head of the Vizier Consulting risk advice business.
Saudi Arabia, the world’s largest crude exporter, already backs Pakistan’s foreign exchange reserves and has set up a structure for supplying oil to Pakistan on a deferred payment basis, according to him.
“The Pakistanis may request extra deposits in their central bank from Riyadh since their foreign account is in serious trouble,” he continued.
Since December of last year, Pakistan’s foreign exchange reserves have been under pressure.
The restoration of the International Monetary Fund (IMF) programme is also critical for Islamabad in this respect. In recent months, the country’s foreign exchange reserves have plummeted. Aside from finance requirements, the IMF’s approval would open the path for other creditors.
Pakistan’s finance minister stated earlier this week that his administration was focused on resuming the IMF programme, preparing the budget for the coming year, and stabilising the economy.
After the IMF declared the Pakistani government had “agreed that urgent action is essential to remove the unpaid subsidies,” he made his declaration.
Ismail previously stated that the administration has requested a rise in the size and length of the EFF of the IMF.
The minister claimed he and his team had good conversations with the IMF, World Bank, and International Finance Corporation during a news conference in Washington.
“We asked the IMF to extend the EFF programme by a year, from three to four years,” Ismail said, adding that his team received a favourable response. He said, “We’ve also proposed that the fund increase the entire loan size by $2 billion.”