ISLAMABAD: Saudi Arabia’s decision to provide $3 billion in additional financial support to Pakistan and extend an existing $5 billion deposit will help strengthen Islamabad’s foreign exchange reserves and support its IMF-mandated reforms, a senior finance official and analysts said on Wednesday.
Finance Minister Muhammad Aurangzeb said on Tuesday that additional deposits of $3 billion from Saudi Arabia were expected to be disbursed in the coming week, while the existing $5 billion facility would no longer be subject to annual rollover and instead be extended for a longer period.
The announcement came as Pakistan works to stabilize its foreign exchange reserves and meet external obligations under a loan program backed by the IMF. Media reports indicated earlier this month that Pakistan would be repaying about $3.5 billion to the UAE. These were funds that had been deposited in Pakistan’s central bank to shore up its foreign exchange reserves during a period of financial strain.
Adviser to the Finance Minister Khurram Schehzad said the financial help came at a “pivotal moment” for Pakistan’s economy.
“This timely support will meaningfully bolster our foreign exchange reserves, strengthen external account stability, and reinforce market confidence as we continue to meet our obligations and advance our reform agenda under the IMF-supported program,” Schehzad told Arab News.
He said the Saudi government’s gesture reflects the deep-rooted ties between Islamabad and Riyadh.
“This is yet another manifestation of the enduring, time-tested partnership between Pakistan and the Kingdom of Saudi Arabia, built on trust, mutual respect and a shared strategic outlook,” he said.
’CRUCIAL SUPPORT’
Economist Khurram Hussain described the financial support from Saudi Arabia as “crucial,” particularly because of an unexpected $3.5 billion outflow to the UAE.
“Covering this withdrawal is necessary to keep the IMF program going, because the UAE action opened a critical external financing gap which can complicate Board approval of the recently concluded review,” Hussain explained.
“The extension on deposit maturity helps lower Pakistan’s financing gap for the next fiscal year and provides added comfort for the next review of the Fund program.”
Pakistan and the IMF reached a staff-level agreement last month on the third review of a $7 billion, 37-month Extended Fund Facility (EFF) and for the second review of the $1.4 billion, 28-month Resilience and Sustainability Facility (RSF).
Under Pakistan’s $7 billion IMF program, the country is targeting foreign exchange reserves of more than $18 billion by June.
However, Hussain said that Islamabad had always relied on foreign support rather than domestic reform to meet its foreign exchange needs.
“In this instance, the support was needed within days, whereas increasing FDI or exports will take months, if not years,” he noted.
Ahsan Mehanti, the chief executive officer of Arif Habib Commodities, said the development is likely to lift investor sentiment in Pakistan.
“Pakistan stocks are all set to outperform,” he said. “The expected $3 billion inflow and $5 billion rollover will help address current account imbalances, raise local investor confidence and attract foreign investment upon rupee stability.”
REFORMS, EXPORT GROWTH
Former finance minister Miftah Ismail termed the financial support from Saudi Arabia as “very significant.”
“This will cover recent loan repayments and ease pressure on foreign exchange reserves,” Ismail noted. “With the extension, Pakistan no longer needs annual rollovers for the $5 billion facility.”
Like Hussain, Miftah urged the need for long-term reforms. He called on the government to slash expenditures, lower tax rates, reduce energy prices and enhance exports.
“Our exports have not grown over the last decade and even under the current government of Prime Minister Shehbaz Sharif, we continue to rely on remittances and borrowing to meet obligations,” he noted.
The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) also welcomed the development, saying it is a “much-needed” intervention.
FPCCI President Atif Ikram Sheikh said Riyadh has once again proven to be Islamabad’s “all-weather friend and a pillar of support for Pakistan” during its testing times.
“This financial support offers policymakers the breathing space needed to implement long-term structural reforms and transition toward export-driven growth,” he said.
According to FPCCI, the inflows will help Pakistan build foreign exchange reserves to around $18 billion by the end of the current fiscal year, ensuring an import cover of over three months while restoring business and investor confidence.
The trade body reiterated its commitment to working with the government to translate macroeconomic gains into industrial growth, job creation and stronger bilateral trade with Saudi Arabia.
