Pakistan receives $2bn support from Saudi Arabia

Pakistan has received a substantial financial boost as Saudi Arabia provided $2 billion in support, according to Finance Minister Ishaq Dar. This comes just before the International Monetary Fund’s (IMF) board is expected to grant final approval for a crucial $3 billion bailout. Dar expressed his gratitude to Saudi Arabia on behalf of the prime minister and army chief, hailing it as a significant gesture from a long-standing ally.

The funds were deposited by Saudi Arabia into Pakistan’s central bank, bolstering the country’s foreign exchange reserves. Prior to this support, Pakistan had only enough reserves to cover a month of controlled imports. The pledged funds were announced in April, but Saudi Arabia awaited confirmation of the IMF bailout before making the deposit to the State Bank of Pakistan.

Prime Minister Shehbaz Sharif took to Twitter to express his deep gratitude to the leadership and people of Saudi Arabia. He noted that the support demonstrated the growing confidence of both brotherly nations and the international community in Pakistan’s economic revival.

Pakistan was on the brink of a sovereign debt default, but it managed to secure a last-minute $3 billion IMF bailout at the end of June. The approval of the IMF board, which is scheduled to meet the following day, is still required. Under the nine-month arrangement, Pakistan will receive approximately $1.1 billion upfront, with the remainder disbursed in staggered payments.

The IMF agreement will unlock additional bilateral and multilateral financing, further strengthening Pakistan’s foreign exchange reserves. Finance Minister Dar anticipates that the reserves will reach $15 billion by the end of the month. The recent upgrade of Pakistan’s sovereign rating by Fitch credit rating agency from CCC- to CCC has provided some relief to investors in the country’s stocks and bonds.

The coalition government led by Prime Minister Sharif, facing a national election later this year, will need to undertake additional fiscal discipline measures to satisfy the IMF’s requirements. Pakistan’s central bank has raised its policy interest rate to a record high of 22 percent, while the general population is grappling with an inflation rate of approximately 29 percent.

Pakistan’s economy has faced significant challenges recently, including devastating floods that caused substantial loss of life, extensive damage amounting to $30 billion, and widespread impact on millions of people. Furthermore, the country experienced an international commodity price spike following Russia’s conflict in Ukraine.