Saudi Bails Out Pakistan Again: Cash-Strapped Islamabad Begs, Riyadh Pumps $3 Billion To Help Repay UAE Debt

As Pakistan struggles to pay its UAE debt, its long-term Muslim partner, Saudi Arabia, has come to help. Dubai has asked Islamabad to repay the loans that it took out over the last two decades.  As the UAE-Saudi relations deteriorate, and Pakistan-Saudi cement a defence agreement, Riyadh is providing cash to Asim Munir and Shehbaz Sharif to keep the sinking economy afloat. Saudi will provide $3 billion in additional support for Pakistan to help the South Asian nation bridge a multi-billion-dollar gap in its finances linked to an upcoming debt repayment to UAE. The extra funding for Pakistan comes on top of Riyadh extending the rollover arrangement for an additional $5 billion deposit for a longer period, Pakistan Finance Minister Muhammad Aurangzeb told reporters in Washington.

Pakistan-Saudi Relations After The Big Defence Pact

The move underlines a deepening relationship between Riyadh and Islamabad, cemented last year by a mutual defense pact treating aggression against either as an attack on both.

“We can confirm that Saudi Arabia has agreed to a $3 billion deposit with Pakistan to support their balance of payments,” a Saudi Ministry of Finance spokesperson told Reuters.

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Pakistan faces a $3.5 billion repayment to the UAE this month that has put a strain on its foreign exchange reserves, which stood at about $16.4 billion as of March 27.

The repayment to the UAE amounts to roughly 18% of those holdings.

Under Pakistan’s $7 billion IMF program, the country is targeting foreign exchange reserves of more than $18 billion by June.

Saudi Finance Minister Visits Pakistan

Saudi Finance Minister Mohammed Al-Jadaan was in Pakistan on Friday in what one source familiar with the matter described as a show of economic support, without providing further details.

“Senator Aurangzeb said this support comes at a critical time for Pakistan’s external financing needs and would help reinforce foreign exchange reserves and strengthen the country’s external account,” the finance ministry said in a statement.

The ministry added that Pakistan is committed to maintaining foreign exchange reserves “in line with its obligations to markets and under the IMF-supported programme”.

Pakistan Bonds Rally

Pakistan’s international bonds rallied on the news, with longer-dated maturities adding nearly 1 cent to trade at their strongest level since late February.

Asked on Monday whether a Saudi loan was on the table to replace the UAE facility, Pakistani Finance Minister Muhammad Aurangzeb said “all options are on the ​table,” including Eurobonds, loans and commercial debt.

Saudi Arabia has repeatedly stepped in to support Pakistan during periods of economic stress. In 2018, Riyadh unveiled a $6 billion package that included a $3 billion deposit at Pakistan’s central bank and $3 billion in oil supplies on deferred payment.

Pakistan Mediating US-Iran War

Pakistan, meanwhile, has emerged as the key mediator between the U.S. and Iran to end the war in the Middle East while also shoring up Saudi Arabia’s defenses after the Gulf kingdom came under hundreds of Iranian missile and drone attacks.

Last week, Pakistan deployed fighter jets and support aircraft to Saudi Arabia after Iranian strikes on key Saudi energy infrastructure.

(With inputs from Reuters)

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