ISLAMABAD: Pakistan on Thurs­day secured a lifeline of about $4 billion from the United Arab Emirates and Saudi Arabia to sail through the immediate challenge of a sovereign default amid rapidly shrinking foreign exchange reserves, massive flood damages and an overall economic slowdown.

Two separate official announcements said the UAE pledged to roll over $2bn debt payable over the next two months and topped this with an additional $1bn support during an ongoing visit of Prime Minister Shehbaz Sharif to the emirates.

Separately, the Saudi Fund for Development (SFD) signed an agreement in Islamabad to fund $1bn worth of oil imports on deferred payment.

The central bank’s reserves dropped to a critical level of $4.34bn on Thursday, the lowest since February 2014 and barely enough to finance less than one month of controlled imports.

UAE approves $3bn financing; Saudi fund signs $1bn agreement for oil supply

The UAE’s earlier loans of $2bn were scheduled to become due for repayment in February and March. The rollover now provides the authorities with an opportunity to revive the IMF programme over the next few days, gradually build back foreign exchange reserves, and put to end a tight control on imports that has crippled the manufacturing sector and created a shortage of essential items.

The agreement on Saudi support was signed in Islamabad by SFD Chief Executive Officer Sultan Abdulrahman Al-Marshad and Ministry of Economic Affairs Secretary Dr Kazim Niaz to finance oil derivatives worth $1bn to Pakistan, the ministry said.

It said the agreement was a formal implementation of the directives from Saudi King Salman bin Abdulaziz and Crown Prince Mohammed bin Salman to support Pakistan in difficult times.

Saudi Arabia said earlier this week that it was considering boosting investments in Pakistan to $10bn and increasing its deposit in Pakistan’s central bank to $5bn from $3bn. The details are yet to be worked out.

Aimed at supporting Pakistan’s economy, sector growth and navigating economic challenges, the strategic agreement signed on Thursday comes as a continuation of the support provided by the government of Saudi Arabia to Pakistan to build a sustainable economy, the ministry said.

It noted that in 2019 and 2021, the SFD signed agreements to finance oil derivatives — commonly known as Saudi oil facility — with a value of $4.44bn but could not be fully utilised.

“The agreement marks the latest steps taken by the government of Saudi Arabia through the SFD and the Pakistani authorities to enhance development in the country,” the statement said, adding that since its establishment, the SFD had supported more than 40 projects and programmes in different development sectors valued at around $1.4bn to finance Pakistan’s energy, water, transportation and infrastructure projects.

PM meets UAE president

The Prime Minister’s Office said in an announcement that during a meeting with Prime Minister Shehbaz Sharif on Thursday in Abu Dhabi, UAE President Sheikh Mohamed bin Zayed Al Nahyan “agreed to roll over the existing loan of $2bn and provide $1bn additional loan”.

It said Sheikh Al Nahyan welcomed Mr Sharif to Abu Dhabi and wished progress and prosperity for Pakistan, praised the historical relations between the two nations and the contributions by the Pakistani community in the UAE, and agreed to visit Pakistan at dates to be decided later.

The two leaders discussed the fraternal relations existing between Pakistan and the UAE and explored ways and means to further strengthen these ties, especially in trade, investment and energy.

The two leaders also exchanged views on regional and international issues of mutual interest. “Both sides agreed to deepen the investment cooperation, stimulate partnerships and enable investment integration opportunities between the two countries,” it said.

They also expressed satisfaction with the pace of steady progress in bilateral relations. They agreed on the importance of enhanced bilateral exchanges and regular dialogue at all levels to solidify further and provide momentum to the relationship.

Published in Dawn, January 13th, 2023