ISLAMABAD: Pakistan has returned $1 billion to Saudi Arabia as a second instalment of a $3bn soft loan, as Islamabad reaches out to Beijing for a commercial loan to help it offset pressure to repay another $1bn to Riyadh next month, officials said on Wednesday.

Analysts say it is unusual for Riyadh to press for the return of money. But relations have been strained lately between Pakistan and Saudi Arabia, historically close friends.

With the $1bn flowing out, Pakistan — which has $13.3bn in central bank foreign reserves — could face a balance of payments issue after clearing the next Saudi instalment.

“China has come to our rescue,” a foreign ministry official told Reuters.

Islamabad reaches out to Beijing for commercial loan to help it offset pressure to repay another $1bn to Riyadh next month

A finance ministry official said the State Bank of Pakistan was already in talks with Chinese commercial banks.

“We’ve sent $1 billion to Saudi Arabia,” he said. Another $1bn would be repaid to Riyadh next month, he added.

Islamabad had returned $1bn in July.

Although a $1.2bn surplus in its current account balance and a record $11.77bn in remittances in the past five months have helped support the Pakistani economy, having to return the Saudi money is still a setback.

Saudi Arabia gave Pakistan a $3bn loan and a $3.2bn oil credit facility in late 2018.

Army Chief General Qamar Javed Bajwa, who visited Riyadh in August to ease the tensions, met the Saudi ambassador in Islamabad on Tuesday.

The People’s Bank of China did not respond to a Reuters request for comment, and Riyadh didn’t issue any details.

Washington has expressed concerns about Pakistan and other developing countries getting stuck in a Chinese debt trap. It has criticised Beijing’s China-Pakistan Economic Corridor plans involving more than $60bn in pledged support for infrastructure projects in Pakistan.

Published in Dawn, December 17th, 2020