Saudi Arabia has agreed to renew a $3bn loan deposited with the State Bank of Pakistan, in an effort to help Pakistan bolster its depleting foreign reserves, Bloomberg and Financial Times reported on Monday.
The Saudi finance ministry will also provide $100 million a month for 10 months in petroleum products that will be granted as additional support, the two publications said citing people familiar with the development.
“The Saudi Finance Ministry plans to renew its $3 billion deposit with State Bank of Pakistan as soon as this week,” said Bloomberg.
The reports of loan refinancing coincide with a telephone conversation between Saudi Crown Prince Mohammad Bin Salman and Prime Minister Shehbaz Sharif.
Saudi Press Agency reported on Monday that Bin Salman received a phone call from Sharif on Sunday and during the call “they reviewed the brotherly and historical relations between the Kingdom and Pakistan, in addition to discussing opportunities for cooperation between the two countries and ways to enhance them in various fields.”
The Saudi crown prince accepted Prime Minister Shehbaz Sharif’s invitation for a state visit to Pakistan, SAMAA TV reported.
Implications for IMF program
The Saudi decision to refinance the loan will help Pakistan secure the next loan tranche of $1.2 billion from the IMF, whose board is set to meet this month to approve the disbursement.
The IMF agreed last month to increase its loan package by $1bn to $7bn, but has conditioned the disbursement on assurances that Pakistan receives additional financial support from elsewhere.
“Saudi Arabia has agreed to roll over its $3bn deposits in Pakistan’s state bank [central bank] reserves, which will help to revive the IMF loan,” a senior Pakistani official told Financial Times.
The official said Pakistan, the IMF and Saudi Arabia had also discussed the possibility of Islamabad being able to borrow up to $2.8bn against Riyadh’s quota of Special Drawing Rights (SDRs) at the fund, the British daily reported.
“Once finalised, Pakistan’s extent of borrowing from the IMF during the present financial year [July to June] will increase by $2.8bn. This will be a very important gesture,” the official said.