Saudi Arabia and the United Arab Emirates (UAE) have not withdrawn their $2 billion loans that matured last month, indicating a thaw in relations between Pakistan and the two key Gulf nations.
Saudi Arabia has retained the remaining $1 billion cash deposit, a senior government functionary having direct knowledge of the the development has confirmed to The Express Tribune on condition of anonymity.
The Ministry of Finance did not officially comment on the development, saying it was a “bilateral confidential matter”.
This appeared to be a major development after the kingdom had already withdrawn $2 billion out of $3 billion loans that the oil-rich Gulf nation had extended in late 2018 to help Islamabad avoid default on international debt repayments.
Pakistan’s foreign minister had said in December that Saudi Arabia took back loans due to a slump in crude oil prices.
The top government functionary had confirmed that the United Arab Emirates (UAE) has rolled over $1 billion deposit for another year.
Both the loans matured in the fourth week of January, sources in the Ministry of Finance said.
Prime Minister Imran Khan had obtained $6.2 billion financial support package from Riyadh in October 2018 and another $6.2 billion had been agreed by the UAE. However, the UAE subsequently disbursed only $2 billion.
The remaining $1 billion of UAE loan would mature in March which, the sources said, could also be rolled over for another year.
The foreign ministers of Saudi Arabia and Pakistan had a telephonic conversation early last month. The Ministry of Foreign Affairs had stated in a statement that the Saudi foreign minister would visit Pakistan in January.
Although the visit did not take place, the high-level contact gave a hope that both the countries had started bridging their differences.
Sources in the Ministry of Economic Affairs said on Wednesday that Saudi Arabia did not sign a formal agreement with Pakistan for debt suspension under the G-20 initiative.
Pakistan had estimated a $2 billion temporary debt suspension under the first phase, including $615 million to $715 million from Saudi Arabia. However, now it expects $1.7 billion temporary debt relief under the first phase, including $516 million from Saudi Arabia.
The club of the world’s richest economies, G-20, had asked the applicant countries to conclude debt suspension agreements by December 31, 2020 for phase-1 (May to Dec 2020).
Pakistan has not been making regular debt repayments to Saudi Arabia after the kingdom confirmed in July last year to suspend the bilateral official credit under the G-20 initiative.
Pakistan’s debt to GDP ratio has increased to over 87% from 72.5% in 2018, Debt servicing eats up a major chunk of the budget every year.
The fiscal operations summary for the July-December 2020 period, released on Wednesday by the Ministry of Finance, showed that the federal government had spent Rs1.5 trillion on debt servicing in just six months. This included Rs1.36 trillion domestic debt servicing and Rs118 billion external debt servicing.
The Rs1.5 trillion debt servicing was equal to 66% of the FBR’s tax collection in six months.
It is not clear whether Saudi Arabia would also revive the $3.2 billion deferred oil financing facility. The Ministry of Finance senior functionary said that there was no further development on this issue. The kingdom had withdrawn the $3.2 billion deferred oil financing facility in May last year.
Pakistan had made arrangements for repaying the remaining Saudi loan. The sources said that Pakistan secured three different loans from China to return the Saudi debt.
Beijing gave $1 billion soft loan and two separate financing lines of $1.5 billion and $500 million to pay back the Saudi debt,” the sources told The Express Tribune.
The central bank’s gross foreign exchange reserves of around $13 billion remain fragile, as these are largely built by taking loans.