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Circular Debt in Pakistan – China to Saudi Arabia

Published Oct 07, 2020
Updated Oct 07, 2020

Dawn news reported that Pakistan has paid back a $1 billion loan to Saudi Arabia out of the $3 billion loan secured in 2019. For this purpose ironically a  loan of $1 billion from China has been taken to pay back the Saudi Arabia loan.

Saudi Arabia had agreed to provide the financial package of $6.2 billion to Pakistan for three years in 2018 which included $3 billion in cash assistance and $3.2 billion worth of annual oil and gas supply as per the Dawn.

International Monetary Fund (IMF) stated in a report in April that “Saudi Arabia also refinanced $3-billion BOP (balance of payments) support loans that matured in November (2019)-January (2020).”

In 2018 Prime Minister Khan defended what he admits are “painful reforms,” saying Pakistan’s financial woes could not be addressed without taking tough, long-overdue measures. He blames alleged mismanagement and corruption by his predecessors for the ailing state of economy.

The government has increased duties on luxury imports, significantly devalued the currency to encourage exports and raised prices of utility services, particularly natural gas, to generate more revenue.

Officials defend their arrangement of emergency loans from Pakistan’s friendly countries, saying they are intended mainly to secure a breathing space for macroeconomic stabilization measures to take root and create a business friendly environment.

In addition to lending urgent cash deposits of $3 billion each at an interest rate of about 3 percent, both Riyadh and Abu Dhabi have also allowed Islamabad to defer $6 billion in oil import payments for one year.

Pakistani officials say the Saudi government has disbursed $3 billion and the process for $3 billion in deferred oil payments have been finalized.

An agreement is expected to be signed when Saudi Crown Prince Mohammed bin Salman visits Islamabad Sunday. He was originally scheduled to begin his visit Saturday, but late Friday Pakistan’s foreign ministry announced the one-day delay without any changes to the prince’s activities in Pakistan.

The prince is expected to announce projects worth up to $20 billion during his first state visit, Pakistani investment minister Haroon Sharif told VOA this week. The projects include a massive oil refinery in Gwadar with an estimated investment of around $10 billion.

The UAE is working to establish an oil refinery in Pakistan and plans investments in other sectors. Malaysia, Qatar and South Korea are among other countries anxious to invest in Pakistan, officials said.