Saudi Arabia has extended the USD 3 billion debt repayment period with Pakistan for another year after the cash-strapped nation could not pay the debt, the country’s central bank has said.
The term of the deposit was maturing on Thursday. The State Bank of Pakistan stated that Saudi Arabia had placed the USD 3 billion deposit initially for one year in 2021 and subsequently rolled over it in 2022 and 2023, after the issuance of the royal directives that reflect the continuation of the close relationship between the two brotherly countries, the Express Tribune reported.
It was the first extension in a series of debt extensions, which Pakistan would need from now till the end of June next year to avoid at least USD 13 billion more repayments to Saudi Arabia, China and the United Arab Emirates.
Another USD 2 billion Saudi cash deposit will be maturing by mid-June next year, which Pakistan will again not pay back and get a rollover, said the Finance Ministry sources.
“The Saudi Fund for Development (SFD) on behalf of the Kingdom of Saudi Arabia has extended the term for the deposit of USD 3 billion maturing on December 5, 2024, for another year,” the central bank announced on Thursday – the last day to make the payment.
It was the third extension despite former Prime Minister Imran Khan and the incumbent Prime Minister Shehbaz Sharif promising to pay back the debts on time.
Both the government of Pakistan and the International Monetary Fund have been implementing a policy to seek debt rollovers from China, Saudi Arabia and the UAE to avoid sovereign default.
However, the restrictions of not paying the debt are only imposed in the case of these three nations as the debts of the World Bank (WB), the Asian Development Bank and the IMF are paid on time.
Pakistan owes 45 per cent of its total external public debt to the bilateral creditors with China as the single largest lender. Another 45 per cent of debt is owed to the multilateral creditors.
The World Bank is the single largest multilateral creditor with USD 20 billion exposure to Pakistan as of the end of 2023, according to its International Debt Report.
The policy to avoid default and formal debt restructuring has been compounding Pakistan’s debt problems due to an increase in the debt stock and constantly growing interest payments.
The WB report stated that “Pakistan made the second-largest interest payments in the region”.
The SBP said that the extension of the term of the deposit is the continuation of the support provided by Saudi Arabia to Pakistan, which will help strengthen the foreign exchange reserves and contribute to the country’s economic growth and development.
The sources said that in the next six months, the government will have to make at least USD 13 billion repayments to the three bilateral creditors.
Pakistan is supposed to make roughly USD 8 billion repayments to China in the next six months. These include cash deposits, including USD 2 billion maturing in March.
Pakistan will make a USD 500 million commercial loan payment to China in March, another USD 500 million in April and USD 2.4 billion in June.
The World Bank debt report stated that with almost USD 29 billion in loans, China continued to be Pakistan’s largest bilateral creditor while Saudi Arabia emerged as the second largest bilateral lender with about USD 9.2 billion.
The International Debt Report 2024 put Pakistan’s total external debt at roughly USD 131 billion in 2023, accounting for 352 per cent while Pakistan’s total external debt servicing amounted to 43 per cent of total exports.
Unlike in the past, the IMF loans are also not helping to secure major fresh lending and the SBP is now compelled to buy dollars from the market by artificially keeping the dollar rate higher compared to the rupee.
Pakistan has also separately requested China to reschedule another USD 3.4 billion worth of official and guaranteed debt for two years, which is maturing during the IMF program period.
The rescheduling of the USD 3.4 billion project debt was very crucial for Pakistan to meet its USD 5 billion external financing gap that the IMF identified at the time of signing of the bailout package in September.
