Pakistan may seek a $7.4 billion financial assistance package from Saudi Arabia in the shape of cash deposits and oil on deferred payments, including rollover of the existing $4.2 billion facilities that are expiring by the end of this year.
The request will be made during the three-day visit of Prime Minister Shehbaz Sharif that would begin from today (Thursday), according to the Ministry of Finance officials. Finance Minister Dr Miftah Ismail will also be part of the official entourage.
Senior finance ministry officials said that the government would seek $2 billion additional cash deposit in addition to the rollover of the existing $3 billion facility, which would mature by the end of this year. They said this time the country was seeking the loan for a longer than one year period, in addition to relaxation in terms of the previous agreement.
In October last year, the Kingdom of Saudi Arabia had announced giving $3 billion in cash deposit for one year and oil on deferred payment equal to $1.2 billion annually. However, the oil facility became operational only in March this year when the country lifted $100 million equivalent oil.
The request will also be made to double the oil on deferred payments limit to $2.4 billion, according to the officials. The net additional financial assistance is $3.2 billion in the shape of cash deposits and oil on deferred payments.
The last PTI government had obtained $3 billion cash at 4% interest rate and the oil on deferred payments at 3.8% rate for one year, according to the terms agreed between both countries. Unlike in the past, there was no option for the rollover of the Saudi loan and the country is required to return it at once after one year.
However, the sources said that the government also wanted to renegotiate the terms of the November 2021 agreement.
The PTI government had to accept tough loan conditions due to the weakening external sector situation and its inability to enhance the foreign exchange reserves to a level that was sufficient to comfortably finance the imports. Former prime minister Imran Khan’s government took gross $57 billion loans to remain afloat.
The new government, too, did not have an option but to rush to the IMF and also seek help from friendly countries to stabilize the economy and arrest the downward slide in the value of the rupee.
In 2014, Saudi Arabia had given a $1.5 billion grant to the government of former Prime Minister Nawaz Sharif.
According to the existing agreement, Saudi Arabia can demand immediate return of the money in case of sovereign default by Pakistan. Another clause of the agreement says that Pakistan is bound to return $3 billion to Saudi Arabia within 72 hours of a written request by Saudi Arabia at any time during the term of the agreement.
The new government does not have the financial muscles to pay back the amount and also keep the rupee-dollar parity stable.
The gross foreign exchange reserves are already at a critically low level, standing at $10.8 billion as of the end of last week. The government has engaged the International Monetary Fund and the technical discussions began on Wednesday.
The IMF staff on Wednesday sought the complete details of taxes collected from petroleum products and the subsidies given so far. If the technical discussions proceed smoothly, the IMF mission may arrive on May 10th for a staff level agreement.
Subject to the agreement, the IMF has shown willingness to increase the loan size to $8 billion, in addition to extending the programme period to June next year – an extension of nine months against the original schedule.
The government is set to increase the petroleum products prices from the first of next month aimed at giving a signal to the IMF that it was serious about taking measures needed to revive the stalled programme.
The sources said that the government may pitch two projects for the Saudi investment. In December 2018, Saudi Arabia had announced plans to set up an oil refinery and petrochemical complex in Pakistan but the plan could not be materialised.
Last month, China and the United Arab Emirates also rolled over $4 billion maturing debt due to the previous government’s inability to pay them back.