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Tuesday, July 16, 2024

Saudi Arabia’s loan to Pakistan: Aid or a Trap?

In the midst of Pakistan’s serious economic challenges, Saudi Arabia’s offer of US$4.2 billion in financial assistance will help to bring Saudi-Pakistan relations back on track. The Saudi move is also intended to signal that, while improving ties with India, it also wants to check any further deterioration of links with Pakistan.

Cash-strapped Pakistan will soon get a $4.2 billion loan package from the Saudi govt as the cabinet led by PM Imran Khan approved an agreement to keep the money in the central bank of the country. The mutually agreed agreement includes $3b in cash and $1.2b in the form of oil on deferred payment facility. Saudi loan to Pakistan is coming at a price as well.
According to the agreement, the aid will remain in the SBP’s account for a time span of one year. The harsh part is the 4% interest rate that is imposed on the $3b cash – unlike the previous term it was 3.2%. This amounts to $120 million of interest which is 1.4 times – $24m – than the previous aid received; while the $1.2b deal is secured on a 3.8% interest rate.

What are the conditions behind the loans?

The aid is provided with no rollover time and the money can be withdrawn by the Saudi govt anytime by giving 72 hours short notice. The prevailing conditions and the compulsions of Pakistan have resulted in agreeing to the tough conditions.
Prior to this, IMF had provided $6b loans to Pakistan in May 2009 with a much less interest rate of 3.2%. What if the state fails to pay back? It would be considered a sovereign default and the lender’s state law would be applicable for arbitration rather than the international court of justice ICJ. Moreover, an end to IMF membership will also be treated as default, said the sources. The country is tangled in a situation due to years of fiscal extravagance; borrowing loans to returning old loans and paying new import bills.
At the time when Rupee has lost 15pc of its value, indeed the Saudi Govt showed a gesture of friendship providing the aid, but with such rigid conditions, it is deemed Pakistan is moving to surrender its sovereignty which is perturbing.
The question is, with the ongoing pandemic conditions and the newly hit omicron variant, the economies are already at stake, so would Pakistan be able to pay back? And also, is it wise to agree to such despotic conditions?

The power sector has also dropped bombs on local consumers

Earlier in November, the national electric power and regulatory authority NEPRA approved an increase of Rs 2.52 per unit in the power tariff for electricity consumers on account of fuel cost adjustment. And now at the of the month, the central power purchasing agency CPPA has once again requested NEPRA to increase the electricity prices by Rs 4.75 per unit in reference to October’s fuel adjustment prices. If NEPRA approves CPPA’s request, the public will have to bear an extra burden of Rs. 60ball across the country. The prices of each and every commodity will alleviate that will result in a new wave of inflation.
The country is already indulged in a distrusting environment – due to bombshells like these – which will pave way for the opposition to raise fingers and blackmail the sitting government. The common man is the real victim of these decisions. The initial claims of the incumbent to adopt austerity drives seem a mockery now. The rise in inflation is hitting hard the businesses. In these circumstances, every citizen is questioning the credibility of the government. Talking in terms of the economic measurements, the government has failed to adopt the required substantial steps.
The writer is a freelance writer. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.