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Saudi Arabia on Tuesday agreed to give support worth at least $6bn to Pakistan to help the south Asian country avert a balance of payments crisis, in a move that highlights Riyadh’s financial clout even as it struggles to emerge from a diplomatic imbroglio.

At present, Islamabad’s liquid foreign currency reserves of about $8bn are only enough to finance about seven to eight weeks of imports, and the government of Imran Khan, prime minister, has been seeking a new loan from the IMF.

“It was agreed Saudi Arabia will place a deposit of $3bn for a period of one year as balance of payment support. It was also agreed that a one-year deferred payment facilities for import of oil, up to $3bn will be provided by Saudi Arabia,” said Pakistan’s finance ministry in a late-evening statement.

The financial support comes as the Saudi leadership and the country’s de facto leader, Crown Prince Mohammed bin Salman, are embroiled in controversy over the killing of the journalist Jamal Khashoggi at the Saudi consulate in Istanbul earlier this month.

The Saudi Arabian loan will be roughly equivalent to one-third of Pakistan’s current account deficit of $18bn during the last financial year, which ended in June. Some analysts believe that the deficit for the present financial year may swell to $25bn or more.

A senior Pakistani government official told the Financial Times that the Saudi support will not allow, in itself, Islamabad to avoid an IMF bailout, which some politicians dread because of the fund’s probable insistence on unpopular belt-tightening moves such as sharp increases in electricity and gas tariffs.

“The Saudi loan effectively takes Pakistan out of its economic isolation. It shows that Pakistan has friends who are willing to help us. Other than the Saudis, we also expect China to help,” the official said.

“Ultimately, we will need to go to the IMF because that will be the only way to unlock funds from other places like the World Bank, the Asian Development Bank and the markets.”

Nadeem ul Haq, a former senior IMF economist and former deputy chairman of Pakistan’s planning commission, said: “This loan has come at a good time but it’s inadequate. Pakistan will still have to reform its economy and undertake tough reforms. As a country, you can’t avoid the doctor to cure the illness and that is why the IMF is very essential.”

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Published on our website on Wednesday, 24 October, 2018