Saudi Arabia’s crown prince Mohammed bin Salman is to arrive in Pakistan as soon as this week with the promise of billions of dollars in cash, subsidies and investment for the kingdom’s cash-strapped ally.
His expected visit, the exact date of which has yet to be confirmed, comes as Pakistan’s finance minister, Asad Umar, said his country had “come very close to having an agreement with the IMF” following talks on a multibillion support package between Prime Minister Imran Khan and the IMF’s Christine Lagarde in Dubai on Monday.
Any agreement with the IMF would help to allay fears that the $14bn those planning the trip expect Saudi Arabia to pump into Pakistan will come with strings attached.
Some observers say Saudi Arabia could push Pakistan to adopt a confrontational policy against Iran, the kingdom’s main rival, raising concerns over upsetting the delicate balance of power in the region.
Saudi Arabia might have less sway than it would usually expect, however, because of US progress in talks with the Taliban about ending the war in Afghanistan. The negotiations, in which Pakistan’s role is vital, has given the country political clout that could make it less reliant on its conservative Sunni Muslim ally and give it more leverage with other potential sources of funding including China and the IMF.
“This is a new chapter for Pakistan,” said Vali Nasr, dean of the School of Advanced International Studies at Johns Hopkins University in Washington DC, who recently returned from a visit to the country. “Any Afghani settlement needs Pakistan. Pakistan is playing ball with the US and that means Pakistan is in a position to make demands as well.”
In addition, the economy is under less pressure today thanks to the decline in oil prices, which has slowed the pace at which Pakistan was running out of foreign exchange reserves. Pakistan’s currency has also dropped by about 30 per cent against the US dollar since late 2017, making the country’s exports more competitive.
“Today, Pakistan is in a much better place economically than six months ago,” said Taimur Baig, chief economist for DBS in Singapore. “It will be pragmatic and end up taking a little from everyone.”
“Today, everyone is talking to everyone,” added one Pakistani banker. “Pakistan is returning to the diplomatic fold.”
Still, not everyone shares this more optimistic view of Pakistani prospects. Earlier this month, for example, Standard & Poor’s downgraded Pakistan’s long-term sovereign rating to “B-”, citing diminished growth prospects. “While Pakistan has secured financial aid from bilateral partners to address its immediate external financing needs, we believe that fiscal and external imbalances will remain elevated,” the rating agency said.
Some analysts believe it is precisely financial aid from countries such as Saudi Arabia that has kept Islamabad from adopting reform measures that may prove painful in the short run but are necessary for longer-term stability.
“Mideast funds only offer temporary liquidity support. While these could eventually generate both exporting capacity or reduced imports, the short-run impact will not be positive for Pakistan’s external position,” noted Johanna Chua, head of regional economics for Citigroup in Hong Kong in a report entitled “Kicking the Can Down the Road to the IMF”. “Mideast support is allowing the government to take more time to negotiate an IMF programme.”
Saudi Arabia, however, remains a longtime ally of Pakistan. Pakistan’s army provides 15,000 soldiers to protect its royal family in exchange for $5bn annually, according to Mr Nasr. Moreover, there are about 1m Pakistanis working in the kingdom and hundreds of thousands more scattered throughout the United Arab Emirates and Qatar, whose remittances have helped to narrow Pakistan’s current account deficit in recent years.
Pakistan has only about $8bn in foreign exchange reserves, enough to last it for about two months. The $14bn Saudi Arabia plans to commit includes $6bn in a loan to beef up liquid foreign reserves and in deferred payments for Saudi oil shipments to Pakistan. The remaining $8bn will go towards financing a multibillion-dollar refinery at Gwadar, a coastal city with a deep seaport near the Iranian border, according to senior government officials responsible for monitoring foreign investments in Pakistan.
“They [Saudis] need friends now more than at any other time and Pakistan needs investments,” said retired Major General Mahmud Durrani, a former national security adviser.
Source: FT
