Saudi Arabia’s bailout of Pakistan: how Islamabad went in and out of favour in Riyadh

In a major reprieve for cash-strapped Pakistan, Saudi Arabia on May 1 agreed to provide financial aid worth $8 billion.

Plagued by dwindling forex reserves, high inflation, a widening current account deficit, and a depreciating currency, Pakistan has now received a much-needed reprieve in the form of an $8-billion bailout from Saudi Arabia. The financial bailout comes after newly sworn-in Pakistani Prime Minister Shehbaz Sharif met with Crown Prince Mohammed Bin Salman (known popularly as MBS) on a recent visit to Saudi Arabia.

The financial package includes doubling of the oil financing facility, additional money either through deposits or Sukuks, and rolling over of the existing $4.2 billion facilities, The News reported.

Pakistan had proposed the doubling of the oil facility from $1.2 billion to $2.4 billion and Saudi Arabia agreed to the proposal. The two nations also agreed that the existing deposits of $3 billion would be rolled over for an extended period up to June 2023, according to an official. Sharif also visited UAE Crown Prince Muhammad Bin Zayed in Abu Dhabi before returning to Islamabad.

The two Islamic nations, both with a Sunni majority, have had cordial relations since the formation of Pakistan in 1947. The two countries even signed a ‘treaty of friendship’ in 1951 and Saudi Arabia houses the largest number of Pakistani expatriates, numbering approximately one and a half million.

The two nations have also signed several agreements on security (military), culture, economy, political consultation, education, taxation, trade, religious affairs, press, air service, and investments. Pakistan’s exports to Saudi Arabia mainly comprise textile and food items (1.77% of its total exports) while its imports are mainly oil and related products.

During ex-PM Nawaz Sharif’s tenure from 2013 to 2018, Saudi Arabia provided a $7.5 billion package to Pakistan. Similarly, during Imran Khan’s tenure, the Gulf nation provided a package of $4.2 billion, including $3 billion in deposits and a $1.2-billion oil facility for one year and linked it with the IMF programme.

On August 5, 2019, India abrogated Article 370, scrapping the special status accorded to Jammu and Kashmir, in a move vehemently opposed by Pakistan. Seeking international condemnation, then-Pakistan PM Imran Khan raised the issue in the UN General Assembly (UNGA), terming the move a violation of 11 resolutions of the UN Security Council, the Simla agreement, and India’s own Constitution.