Pakistan to pay interest at higher rate on Saudi loan

The $6b IMF loan is less expensive

Pakistan will be paying the interest at a comparatively high rate on the $4.2b cash and oil facility it has been offered by Saudi Arabia, officials have confirmed.

The confirmation comes a day after the federal cabinet approved the Saudi aid package on Saturday.

A spokesperson of the federal finance ministry has hailed the Saudi package as a symbol of brotherly relations between Pakistan and Saudi Arabia.

The spokesman said Pakistan has secured the $3b loan from Saudi Arabia at an interest rate of 4% while the $1.2b oil on deferred payment facility has been secured at an interest rate of 3.8%.

The interest rate of about 4% is higher than the rate offered by the International Monetary Fund (IMF). In May 2009, the then Finance Minister Abdul Hafeez Sheikh disclosed that the $6b IMF loan for Pakistan carried an interest rate of 3.2%.

International financial institutions charge different interest rates for different countries based on their economic and security conditions. A country with a strong economy can get a loan at an interest rate as low as 1%.

Saudi Arabia in the past offered loans and the oil on deferred payment facilities to Pakistan at a comparatively low interest rate.

The higher interest rate will reportedly cost Pakistan $24b more compared to what the country paid for the same facility in 2018 under the PTI government.

A report carried by Express Tribune on Sunday claimed that Pakistan has accepted tough conditions for loan repayment: it would have no rollover option and will have to repay the $3b loan one year after the date of deposit.

However, the finance ministry spokesperson said that every memorandum of understanding (MOU) contains dispute resolution provisions. "It does not mean that the country's sovereignty has been compromised," the spokesperson said.

The finance ministry said that the government of Pakistan is grateful to Saudi Arabia for extending help "in this need of the hour" and the loan agreements reflected strong brotherly relations between Pakistan and Saudi Arabia.

Saudi Arabia announced the $4.2b package for Pakistan in October after Prime Minister Imran Khan and his team visited Riyadh and met with Saudi Crown Prince Mohammad Bin Salman.

Under the agreements the Saudi Fund for Development would “deposit an amount worth of US$3 billion into the State Bank of Pakistan to help the Pakistani government support its foreign currency reserves and support it in facing the impacts of the coronavirus pandemic,” the SPA reported at the time.

“In addition, the royal directive was issued to finance the oil derivatives trade with a total amount of US$1.2 billion throughout the year,” it had added.

Pakistan-Saudi Arabia

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