Saudi Arabia’s Crown Prince Mohammed bin Salman has ordered exploring increasing the Kingdom’s assistance and investments in Pakistan, a step toward furthering relief to the South Asian nation economy reeling from deadly floods.
The Saudi Fund for Development will conduct a study on increasing the deposit in Pakistan’s central bank to $5 billion from $3 billion earlier, the Saudi Press Agency reported Tuesday. It will also assess the plan to increase investments in Pakistan to $10 billion, according to the same report.
The Kingdom’s fund provides soft loans and grants to developing countries as a means to bolster allies and cement new relationships. The statement comes a day after the Crown Prince met with Pakistan’s army chief General Syed Asim Munir to review ways to enhance bilateral ties and strengthen cooperation.
Pakistan’s economy was strapped for funds after a gridlock with the International Monetary Fund over tax targets delayed disbursal of loan installments. The situation was made worse by floods that inundated a third of the nation and cut its growth by half. Pakistan has relied on friendly nations to tide over the crisis. Earlier this week, the nation received commitments of more than $10 billion in assistance.
The nation’s foreign exchange reserves dropped to $5.6 billion — the lowest in almost nine years and enough to cover less than one month of imports. The deteriorating economic outlook triggered downgrades, forcing authorities to announce austerity measures to reduce energy bills and save dollars.
It’s a strong commitment from Saudi Arabia, but likely to be subject to resumption of the IMF program, said Tahir Abbas, head of research at Karachi-based Arif Habib Ltd. “The investment would be in setting up a refinery in Pakistan, for which the government needs to complete modalities including finalization of refinery policy.”
Saudi Arabia last month extended another loan of $3 billion at 4 percent to Pakistan for a year. The Saudi government will “continue to support Pakistan as much as we can,” Saudi Finance Minister Mohammed Al Jadaan said at a press conference last month.
Pakistan is also looking to seek extension of a $2.1 billion from China that is due in March. About 30 percent of Pakistan’s foreign debt is owed to China, including state-owned commercial banks.