Are the days of unconditional financial bailouts from Gulf to Pakistan over?
Pakistan’s relationship with Arab Gulf States has remained multi-faceted and has sustained extensive political, security and economic ties with all the stakeholders in the Gulf. Pakistan has remained a trusted partner of these states in the security domain. On the other hand, the Gulf States have played an important part in Pakistan’s economic progression through multiple means. These states remain home to millions of Pakistani expatriates whose foreign remittances have become extremely vital to keeping Pakistan’s ailing economy afloat. Moreover, all Gulf States have time and again provided Pakistan with financial assistance and remained a major source of foreign direct investment in the country.
Within the Gulf, Saudi Arabia has remained a major financial supporter of Pakistan. Saudi Arabia started to provide financial assistance to Pakistan in the 1970’s. During 1979–1990, Pakistan got a special aid package of $200 million from the Kingdom. Saudi Arabia has also bailed Pakistan out on numerous occasions. In 2014, a Saudi financial intervention was critical in salvaging Pakistan from economic crisis when it deposited $1.5 billion in Pakistan’s State Bank. Similarly, in 2018 Saudi Arabia again provided Pakistan with a loan of $3 billion in order to shore up the country’s foreign reserves. In addition to this monetary support, Saudi Arabia also agreed to provide Pakistan with oil worth $3 billion on deferred payments. Again in 2021, through the auspices of the Saudi Fund for Development (SFD), a further $3 billion deposit was made into Pakistan’s State Bank. In 2022, the term for this deposit was again extended by the Saudi government in order to help Pakistan stabilize its depleting foreign reserves. Furthermore, Saudi Arabia provided Pakistan with another $1 billion deferred oil payment facility in 2023.
This is no longer the preferred lending policy of Gulf donors who increasingly understand that countries like Pakistan have become addicted to this foreign aid dependency and are not ready to introduce structural economic reforms or fiscal disciplining regimes.
The United Arab Emirates (UAE) have emerged as another key nation providing Pakistan with much needed financial support in the last few years. In 2019, the UAE’s Abu Dhabi Fund for Development (ABFC) provided Pakistan with a $2 billion interest free loan to alleviate Pakistan’s balance of payment crisis. For the next three consecutive years this amount which had been deposited in Pakistan’s State Bank had been rolled over by the Emirati authorities as returning such an amount would have depleted Pakistan’s foreign reserves considerably. In 2023, as Pakistan’s foreign reserves reached dangerously low levels, the Emirati government again pledged to provide an additional loan of $1 billion. Qatar became the third Gulf nation that provided Pakistan with financial assistance in order to stave off Pakistan’s balance of payment crisis. In this regard, Qatar deposited $500 million with Pakistan’s State Bank in 2019. This was part of an overall $3 billion package that also included investments within Pakistan. In 2022, Qatar again affirmed to invest around $3 billion within Pakistan. Qatari interest this time was in buying assets within Pakistan which would indirectly have boosted Pakistan’s foreign reserves.
It can be argued that Pakistan’s foreign reserves would have been totally depleted without this financial help from the Gulf States. But with Pakistan once again seeking the Gulf’s monetary support to save itself from a balance of payment crisis, it appears the traditional policy status quo vis-à-vis foreign aid has changed for the Gulf States.
Historically, Gulf States have been relatively quick to grant economic bail out packages to governments, but this is no longer the preferred lending policy of Gulf donors who increasingly understand that countries like Pakistan have become addicted to this foreign aid dependency and are not ready to introduce structural economic reforms or fiscal disciplining regimes.
The ascendence of a new generation of royals within the Gulf States has exacerbated this trend. Gulf States particularly Saudi Arabia and the United Arab Emirates (UAE) seem to be revising their inherent no-strings attached foreign aid regimes and have started to work alongside international financial organizations in order to devise new lending arrangements for aid recipient states like Pakistan. It is understood that Gulf actors want Pakistan to reach an agreement with the International Monetary Fund (IMF) and follow this understanding in letter and spirit. Meanwhile it is also expected from Pakistan to provide these lenders with a detailed roadmap of economic recovery and to take measures for political certainty within the country.
As the Saudi finance minister has clearly stated, since Saudi Arabia is now taxing its own citizens and has initiated economic reforms internally, it wants countries receiving Saudi financial assistance to replicate this model. The mood in the Gulf suggests that the days of unconditional financial bail outs are over and to capitalize on GCC support, Pakistan needs to put its house in order.
- Umar Karim is a doctoral researcher at the University of Birmingham. His research focuses on the evolution of Saudi Arabia’s strategic outlook, the Saudi-Iran tussle, conflict in Syria, and the geopolitics of Turkey, Iran and Pakistan. Twitter: @UmarKarim89