The Saudi Arabia government’s decision to finalise the extension of its $3 billion to shore up Pakistan’s foreign reserves while the IMF talks are ongoing is a much-needed boost for the new government. Prime Minister Shehbaz Sharif’s visit to Saudi Arabia earlier this month entailed a discussion on this issue; in fact, reportedly there were talks to perhaps ‘augment’ the existing $3 billion. This might still come to pass, but it is clear that financial institutions and key partners will be waiting to see the government’s economic trajectory before making any firm commitments.
The Saudi government’s decision came from the sidelines of the World Economic Forum gathering in Davos, set to wrap up today. Foreign Minister Bilawal is present at the WEF meeting, and it is hoped that there is an opportunity to meet key allies and discuss substantive issues. The recent meeting with the US led to admissions from Washington about looking to improve trade ties; something we have not often heard with the constant focus on regional security.
Pakistan cannot currently afford to return any loans offered; the Saudi financing was a direct and key injection into our dwindling foreign reserves. This is why extending the facility extended by Riyadh is supremely welcome.
However, the future of our economy, and the current government’s upcoming budgetary decisions very much depend on the culmination of the IMF talks in Doha. The outcome of those discussions, and whether Pakistan manages to stay in the Fund’s programme remain key in setting out a fiscal path that takes us out of this cycle of recession. Finance Minister Miftah Ismail has a difficult task on his hands, especially since the current government has continuously dismissed the idea of rolling back the fuel subsidies and increasing power tariffs. We will have to wait and see whether the government manages to convince the IF that this shortfall in funds will be filled from other sources.