Pakistan has been one of the biggest beneficiaries of the Kingdom of Saudi Arabia either in the shape of deposits placed with the State Bank of Pakistan, or oil imported on deferred payment, or entertaining workers from the homeland helping improve remittance which in turn helped to improve foreign exchange reserves and in meeting external debt payments.
Over a decade or so the country’s economy has suffered a lot and number of factors jolted economy like floods, FATF issue, delay in getting loans from the IMF, tussle with India, panademic-COVID19, Russia-Ukraine war and political uncertainty, but like China, Saudi Arabia has always bailed out the country and helped gain momentum. In 2019, the Saudi Government approved oil payment on deferred facilities for Pakistan where it kept on reviving the terms and recently it has extended the date to February 2024. According to the data available, in three years of the agreement till 2022, the government has consumed oil worth around $2.7 billion probably from the oil deferred facility. Similarly, the Kingdom has recently placed $2 billion at the State Bank of Pakistan following the approval of the IMF package which helped shore up the foreign exchange reserves. Another roll over facility for $2 billion which ended in December 2022 was extended till December 2024.
The Kingdom has rescued the country a number of times and placed deposits and the rollover loan amount stabilized the country’s economy and rupee to help strengthen. Recently the country has shown interest in setting up an oil refinery and is also willing to be part of a Rekio Diq project.
REKIO DIQ
Barrick Gold Corp, CEO in August while giving an interview to a foreign news agency said the company is open to bring in Saudi Arabia’s wealth fund as one of its partners in Pakistan’s Reko Diq gold and copper mine project.
Bristow said Barrick won’t be diluting its equity in the project but “will not mind” if Saudi Arabia’s Public Investment Fund (PIF) wants to buy out the equity of the Pakistan government. He said that Barrick will support PIF coming into the mine through Pakistan’s 25% equity stake.
Barrick Gold owns a 50% stake in Pakistan’s Reko Diq mine, with the remaining 50% owned by the governments of Pakistan and the province of Balochistan. Barrick considers the mine one of the world’s largest underdeveloped copper-gold areas.
Shan Saeed, Global Chief Economist at based in Kuala Lumpur said Pakistan and Saudi Arabia enjoy excellent diplomatic relations and have always been on excellent terms.
Presently, it is entering into the new strategic phase where Saudi Arabia is inclined to invest in Pakistan and wants to set up an oil refinery. The country has recently shown keen interest and would soon be part of CPEC, one belt and one road project by China.
He added that Saudis are willing to invest around $15 to $20 billion in Pakistan, especially in the refinery project which will change the economic dynamics of the country and will meet the demand not only in Pakistan, but also in the region.
“Strong relationship bodes well for Pakistan and her future. Saudi Arabia has always supported Pakistan in arduous times by providing oil on deferred payment basis. Monetary support would not only improve the foreign exchange reserves but it would also stabilize the economy and rupee parity with dollar”, Pakistan needs macroeconomic stability to achieve growth trajectory in the long run, shared by Shan Saeed.
Saudi-Pak Trade Relations
Pakistan’s exports to Saudi Arabia increased by 31 percent to a record of $563.47 million in the outgoing fiscal year which ended on June 30, 2023, according to data shared by the Pakistani embassy in Riyadh. The exports to the Kingdom were boosted by the sale of rice which stood at $106.68 million, followed by meat and edible meat that increased from $46.8 million to $82.73 million, according to the official data.
Pakistan’s exports to Saudi Arabia were recorded at $429.52 million in the previous year. During the outgoing fiscal year, the South Asian nation imported goods worth $4.2 billion, including $2.9 billion worth of petroleum oils from the Kingdom of Saudi Arabia, as compared to $5.1 billion worth of goods imported in the previous year, the official data suggested. Pakistan mainly imports petroleum products, plastic goods, organic chemical and fertilizer from Saudi Arabia and exports cereals, meat, textile, beverages, edible fruit and vegetable to Saudi Arabia.
There is dire need of activation of the Joint Business Council established between Pakistan and Saudi Arabia Business Council for utilizing the trade potentials and form.
Around 2 million Pakistanis reside in Saudi Arabia who are contributing significantly in the Saudi Arabia economy and this is the largest source of remittances for Pakistan. Arrival of remittance from Saudi Arabia and around the world where overseas people are living have been the biggest avenue for the country to generate greenbacks. In the year ended June 30, 2023 the flow of remittance from Saudi Arabia was $6.446 billion out of total arrivals of $27 billion, a share of about 24%. While in the preceding year when the country recorded remittance of $31 billion, the share of workers from Saudi Arabia was around $7.754 billion or 25%.
Tahir Abbas, head of research from Arif Habib said that Pakistan always enjoyed long term brotherly relationship with the KSA and the Kingdom has always supported Pakistan in testing Oil and gas including refinery sector, minerals mining, food and agriculture.
Analysts were of the opinion that the capital market since long hearing a news that soon Saudi Crown Price and Prime Minister Mohammad Bin Salman to visit Pakistan, any confirmation and arrival would send positive signals to the market as the country immediately require foreign direct investment. Any promise of foreign investment would not only boost the foreign exchange reserves but it would also give much needed impetus to the economy.
They further said that already Rupee has gained almost 7.5% against the US dollars and investment from Saudi Arabia to help further strengthen the domestic currency and support the ailing economy.
Ali Nawaz CEO at Chase Securities said that Pak-Saudi relations stand as a testament to enduring diplomatic ties, fostering strength and resilience. The SIFC platform opens avenues for strategic investments, with promising prospects in sectors like refinery, agriculture, mining, technology, and renewable energy.
“As the partnership deepens, envisioning a robust collaboration in these areas could fuel economic growth for both nations”, said Ali Nawaz. Seeking investment from Saudi Arabia, rollover of safe deposits and deferred oil facilities could be pivotal for sustaining this momentum, facilitating crucial projects and initiatives that further solidify the bond between these two nations. It’s a dynamic era for collaboration, and the potential is boundless, he said.
