See More on Facebook

Economics

$6bn bailout package is a big breather for Pakistan

Saudi Arabia’s bailout package is much needed relief for the country’s ailing economy.


Written by

Updated: October 30, 2018

The Kingdom of Saudi Arabia has pledged to meet half of the $12 billion financing gap that Pakistan faces for the current fiscal year. Coming again to Islamabad’s rescue — third in two decades — Riyadh promised to place a $3bn deposit with the State Bank of Pakistan (SBP) and provide up to $3bn worth of oil supplies on credit — both for a year.

That is a big breather. Coupled with even half of such support from China, it will significantly reduce Pakistan’s external account gap and help restore market confidence. International lending partners are coming on board with foreign exchange reserves rebuilding to a respectable level, which will qualify the country for programme loans. Prime Minister Imran Khan’s first visit to China comes later this week.

Finance Minister Asad Umar expects that Mr Khan’s visit to Beijing will clear things as to how much support is required from the International Monetary Fund (IMF) for which talks are scheduled to begin on Nov 7. This apparently revives the original plan of a minimal balance-of-payments support from the Fund — around $3-4bn instead of the earlier contemplation of a double-digit bailout package.

The falling gap tempted Prime Minister Khan to boast last week that the country might not need an IMF programme.

The finance minister, however, believes that more than the amount of the loan, the IMF engagement is important to access the international capital market for bonds, enable flows from the Asian Infrastructure Investment Bank, World Bank and Asian Development Bank and encourage foreign direct investment.

Saudi Arabia had also provided financial support to Pakistan soon after the latter conducted nuclear tests in May 1998, suffered an economic meltdown and faced US-led international economic sanctions. Starting with oil supplies worth $1bn on deferred payments, Pakistan received $3.5bn support between 1998 and 2002.

A major part of the deferred oil facility was converted into a grant but then discontinued when the leadership at the time volunteered its soft terms to the IMF to the Kingdom’s displeasure.

Another “$1.5bn gift” from Riyadh was deposited to the so-called Pakistan Development Fund in 2014 when the PML-N government was struggling to overcome yet another economic crisis. The funds were subsequently shown as the government of Pakistan’s equity in two major LNG-based power projects in Punjab.

Political and parliamentary noise over the possible engagement of Pakistani troops in the Middle East military crisis practically torpedoed an under-discussion package of around $12bn involving about 100,000 barrels of crude oil per day and about 15,000 tonnes of furnace oil per day for three years. The breathing space then was planned for a heavy spending on technology for reducing power-sector losses, which remained a pipedream.

This time, the government expects $3bn in SBP accounts within two weeks as a ‘safe deposit’ repayable in a year with a negligible return. The oil facility worth up to $3bn will become payable after 12 months. This facility will be available for three years and will be reviewed thereafter. Expectations are again similar as Riyadh faces pressure on the borders and international criticism. Both Pakistan and Saudi Arabia are trying together to achieve a shift in strategic alignments, seemingly away from US good books.

Vision 2030 of the Saudi government has plans for back-and-forth infrastructure links that it calls interconnection of three continents. A proposed refinery at Gwadar for which a formal memorandum of understanding is expected shortly besides an oil storage facility of two to three million tonnes is part of its plan to secure its export supplies. Pakistan has already promised a 16 per cent return on investment in the oil refinery for which a refining policy was approved in the last few days of the PML-N government.

Saudi Arabia has around 8-10 million barrels per dayof oil exports and a storage facility outside the strategic Strait of Hormuz will help secure supplies to the eastern clientele because Russia may have better prospects to grab western markets amidst any adverse conditions in the Middle East.

Linking Gwadar with Oman through an under-the-sea tunnel or bridge could be a major future project involving billions of dollars given Riyadh’s desire to diversify trade routes, including for oil supplies, because of its tension with Qatar and Iran. It has been considering two options — a bridge or tunnel of about 40km to link Gwadar with Muscat and Oman at the mouth of the Strait of Hormuz and connecting its industrial city of Jazan with Eritrea’s Massawa region through a 440km-long tunnel across the Red Sea. The land route between Muscat and Jazan port is around 2,200km long at present.

Pakistan has been seeking a long-term arrangement for oil supplies on delayed payments as one of the most crucial avenues for balance-of-payments support. Out of its total crude oil imports of about 350,000 barrels per day, Pakistan normally imports about 110,000 barrels per day from Saudi Arabia.

Pakistan’s oil import bill amounted to $14.5bn in 2017-18. It can go up to $18bn this year with higher prices and increased consumption.

Finance Minister Umar, however, disagrees with the perception that Saudis made any sort of demands. But he left a hint between the lines, saying “It is a people-to-people connection. They will stand by Pakistan’s side during our time of need and they know we stand by them when they need [us].” The fact remains that the bilateral connection has always been between the civil and military leaderships of the two countries.



Enjoyed this story? Share it.


Dawn
About the Author: Dawn is Pakistan's oldest and most widely read English-language newspaper.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Economics

More changes friendly to foreign investors on way in China

China is courting more FDI as their cash reserves run lower. China will roll out more measures friendly to foreign investors, including further removing business restrictions and leveling the playing field for foreign businesses, to foster a more enabling business environment and attract overseas investment. The decision was made on Wednesday at a State Council executive meeting chaired by Premier Li Keqiang. Meeting participants decided to open up more areas. Restrictive measures outside the national and FTZ negative lists on foreign investors’ market access will be consolidated. Restrictions will be lifted on the business scope for those foreign-invested banks, securities companies and fund management firms that are already operating in China. Policies on foreign investment in the automobile industry will be refined, including giving equal treatment in market access to domestic and foreig


By China Daily
October 18, 2019

Economics

Malaysia’s PM Mahathir says rail line RTS linking Johor Baru to Singapore to proceed

The rail line has been on again and off again. Prime Minister Mahathir Mohamad on Thursday (Oct 17) said Malaysia will proceed with the 4km Johor Baru to Singapore rail line. His comments about the Rapid Transit System (RTS) rail link followed that of Malaysian Transport Minister Anthony Loke on Tuesday that details of the project will be decided by the Malaysian Cabinet within two weeks. Tun Dr Mahathir said when asked by reporters on Thursday: “We will proceed with the RTS but we will take some time.” Asked if this meant the Malaysian government had resolved 


By The Straits Times
October 18, 2019

Economics

BOK slashes key rate to record-low 1.25%

The government hopes to stimulate a stagnating economy. South Korea’s central bank on Wednesday cut the country’s key interest rate to 1.25 percent, reflecting the sluggish economic growth, low inflation and declining exports. Its second rate cut in three months — to the lowest ever level — is in line with the global trend toward monetary easing. “We have cut the base rate considering the lower-than-expected growth outlook and low inflation,” said Bank of Korea Gov. Lee Ju-yeol in a press conference.The BOK’s rate-setting Monetary Policy Board decided to lower the base rate by 25 basis points from 1.5 percent that it had set three months ago. The move paralleled the US Fed Reserve’s decision last month to lower its key interest rate to the 1.75-2 percent range, down 25 basis points from the previous 2-2.25 percent range. The BOK board cited contractions in trade, sl


By The Korea Herald
October 17, 2019

Economics

Hong Kong leader Carrie Lam unveils measures to ease housing crunch

Lam was forced to deliver speech via video after protests. Embattled Hong Kong leader Carrie Lam announced measures aimed at easing a housing shortage on Wednesday (Oct 16) as she battles to restore confidence in her administration and address widespread discontent after four months of mostly violent anti-government protests. Mrs Lam was forced to deliver her speech via video after her annual policy address in the Legislative Council was aborted when some lawmakers repeatedly jeered and shouted at her as she began speaking. After aborting her speech in the chamber tw


By The Straits Times
October 17, 2019

Economics

Thai labourers face uncertainty over cost of production

The trade war has not left Thailand unaffected. The slowdown in global economy has dampened growth of the support industries in Thailand in its role as a part-producer for foreign investors, with all finished items shipped out to target countries or the parent companies. When investing companies add value to their products and sold at higher prices, Thai producers receive less profits, resulting in low wages for labourers. Production of industrial parts could be easily relocated to other countires, said Chalee Loysong, president of the Confederation of Electronic, Electrical Appliances, Auto and Metal Workers (TEAM). A clear sign of the move emerged when companies started to reduce costs through cutting down on the numbers of both full-time workers and those engaged in outsourced work, he said, adding that the latter are especially prompt to being discarded, given the absen


By The Nation (Thailand)
October 16, 2019

Economics

Bengali Nobel laureate Abhijit at a glance

Abhijit Banerjee shared the Nobel Prize for economics. Indian-born Abhijit Banerjee of the US, French-American Esther Duflo and Michael Kremer of the US today won the 2019 Nobel Economics Prize for their work in fighting global poverty. Here is the brief profile of Abhijit Vinayak Banerjee: Fifty-eight-year-old Abhijit was born in Kolkata of India in 1961. His mother Nirmala Banerjee was a professor of economics at the Centre for Studies in Social Sciences in Kolkata. Abhijit’s father Dipak Banerjee was a professor and the head of the Department of Economics at Presidency College in Kolkata. He went to South Point School and completed his BS degree in economics from Presidency College in Kolkata in 1981.


By Daily Star
October 15, 2019