Pakistan’s central bank said it had received $1 billion from Saudi Arabia as part of a support package agreed last month as Islamabad attempts to plug its rapidly deteriorating finances.
A further $2 billion is expected to arrive in the next two months, Abid Qamar, a spokesman for the State Bank of Pakistan said in a text message to Bloomberg on Tuesday.
The inflow will help boost the nation’s foreign exchange reserves that have dropped to the lowest in more than four and a half years. Pakistan is looking to bridge a gap of at least $12 billion caused by its latest balance of payments crisis and is currently negotiating its 13th bailout since the late 1980s with the International Monetary Fund.
Pakistan said in October that Saudi Arabia would deposit $3 billion directly and provide another one-year deferred payment facility of up to $3 billion for oil imports. The announcement came after Prime Minister Imran Khan attended the Future Investment Initiative in Riyadh. He was one of the few prominent foreign dignitaries present after it emerged that Jamal Khashoggi, a Saudi critic, was killed inside the kingdom’s consulate in Istanbul last month.
Khan has also traveled to China and the United Arab Emirates in an attempt to drum up similar financial assistance from friendly countries. So far his success has been limited. The former cricket star was initially reluctant to approach the IMF after U.S. Secretary of State Mike Pompeo said in August that he would be watching to see if Pakistan’s new government used the fund to pay off billions in the opaque Chinese loans.
“Can Mr Trump name another ally that gave such sacrifices?,” Khan said on Twitter.
The South Asian nation has in turn pivoted to China and is one of key nations involved in President Xi Jinping’s flagship Belt and Road trade route. Beijing is financing the construction of power plants and roads across Pakistan valued at more than $60 billion and China has become Pakistan’s single largest foreign direct investor. However, a surge in Chinese imports has been one of the main causes of Islamabad’s current fiscal crunch.
An announcement is expected after talks conclude with the IMF delegation in Islamabad this week. A bailout program is expected to require Pakistan to privatize loss-making public-sector entities, raise interest rates, weaken the rupee, broaden the tax base and increase power tariffs, Fitch Solutions said in a report last week.
“Although Pakistan appears unwilling to accept several of the IMF’s terms and conditions, we maintain our view that an eventual IMF bailout agreement is likely,” according to Fitch. “Pakistan has been living beyond its means for several years now as evident from the widening current account and trade deficit, which is unsustainable.”
(This news/article originally appeared in Bloomberg on November 19th, 2018)