An already fragile economy beset by a decade of political turmoil and lacklustre economic growth, was now facing an existential threat as it was cut off from global financial markets.
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“That’s when Saudi Arabia came to our rescue and offered us an oil credit for the first time,” recalls G. A Sabri, who has served as the top bureaucrat in Pakistan’s petroleum ministry and was part of the negotiations.
“I remember it covered around 100,000 barrels per day (bpd) of furnace and crude oil. We got the shipments on a deferred payment which means you take the oil today but paid much later. But really it was sort of a grant as the payments were waived off.”
Since then, Pakistani leaders have approached Riyadh on a number of occasions asking for similar relief whenever the country’s foreign currency reserves have fallen, or it has struggled to settle international payments.
The oil credit facility was renewed once again after Prime Minister Imran Khan came to power in 2018 and his government sought loans from the International Monetary Fund (IMF) as well as other friendly countries in order to avert a balance of payments crisis.
In November 2018, Saudi Arabia offered $6.2 billion in cash and credit to ease Pakistan’s financial difficulties. Under the terms of the deal, Pakistan could import $3.2 billion worth of Saudi oil every year on credit.
Generally, a buyer has to pay for an oil shipment within 30 days. Pakistan could postpone Saudi payments for months – even years. That credit, though, has not been available for the past few months.
“It was supposed to be renewed in May. It has been three months since the facility expired. They (Saudis) could have done it by now if they wanted to,” says Shahbaz Rana, an Islamabad-based journalist who first reported the Saudi reluctance.
Riyadh is facing an economic crisis of its own. The ambitions of Crown Prince Mohammad Bin Salman to attract foreign investments and businesses — needed to employ a growing young population — have hit a wall in the wake of his increasingly authoritarian rule.
A steep decline in oil prices, a source of nearly two-thirds of the kingdom’s budget revenue, has forced Saudi rulers to cut wages, increase fuel prices and roll back generous handouts.
In such circumstances, it makes sense for an oil-rich country like Saudi Arabia to find ways to preserve cash. Its relations with Pakistan, however, have been bumpy in recent months, fuelling concerns that the two prominent Muslim countries are not on the same page.
Last week, Pakistan Foreign Minister, Shah Mehmood Qureshi, uttered an unusually blunt remark during a TV talk show, warning Riyadh to alter its stance on disputed Kashmir territory.
Pakistan has for months tried to call a meeting of Muslim diplomats under the aegis of Organisation of Islamic Conference (OIC). Saudi Arabia has stonewalled its request.
“The foreign minister should have been careful. Such diplomacy is not done through the media,” Shahid Khaqan Abbasi, Pakistan’s former Prime Minister, who also headed the Ministry of Petroleum at one time, told TRT World.
“We have a 73-year-long relationship with Saudi Arabia with deep political and economic ties. We should be considerate about their own problems.”
Relations have largely endured despite recent hiccups such as when Prime Minister Khan had to cancel his participation in the Kuala Lumpur summit late last year under Saudi pressure. That meeting, attended by Turkish President Recep Tayyip Erdogan, and Iranian President Hassan Rouhani, was seen by Riyadh as a challenge to the OIC, which is headquartered in Jeddah.
Some industry people say that Pakistan is no longer too reliant on the oil credit.
“Look, this credit is not free. You pay interest on it. Oil refineries in Pakistan have long-term supply agreements with other countries or buy crude oil in the open market,” says Irfan Qureshi, the former CEO of PSO, the country’s largest fuel retailer.
“Its discontinuation won’t have any big impact on us.”
In the last financial year, Pakistan spent $13.9 billion on importing petroleum products, with $4.9 billion going towards the purchase of crude oil — this according to the State Bank of Pakistan.
Islamabad used just $769 million, or 24 percent, of the $3.2 billion Saudi credit last year, mainly because of a drop in price of oil.
The low usage of Saudi credit, however, does not imply that Pakistan’s finances have improved. It has foreign currency reserves of around $11 billion and has to pay more than $9 billion in international loans in next 12 months.
Recently, Islamabad repaid Saudi Arabia’s $1 billion cash loan – months ahead of its due date. It did this by taking another loan from China, a country that has already given billions of dollars to Islamabad in order to build power plants and highways, raising concern about Pakistan getting stuck in a debt trap.
“How far do you think China will go? There’s a limit to everything,” says Rana.
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