With US support uncertain, Pakistan secures rollover of Saudi Arabia's $3 billion loan

Pakistan has secured a rollover of a $3 billion loan facility from Saudi Arabia. The renewal came as the prospect of receiving a proposed $10 billion US financial support fund fades. At the same time, the country has set a target of reducing its external debt by $4 billion in the current fiscal year.

Pakistan's finance minister Muhammad Aurangzeb said the country's foreign exchange reserves have exceeded $21.5 billion. According to him, Saudi Arabia has extended the tenure of the $3 billion financing facility it gave Pakistan last April.

That Saudi financing had been taken to meet a funding gap created by repaying a $3.5 billion loan from the United Arab Emirates (UAE). The three-month facility was due to expire on 31 October.

Speaking to journalists at the parliament building on Wednesday, Aurangzeb said the financing tenure had been extended for a sufficient period and there was no need to worry about exactly how long. Given the kind of strategic relationship Pakistan has with Saudi Arabia, there was nothing to be concerned about, he added.

The finance minister said he had held a very fruitful meeting with Saudi finance minister Mohammed Al-Jadaan on the sidelines of the recent World Bank and International Monetary Fund (IMF) meetings in Bangkok. Earlier, Saudi Arabia extended the tenure of another $5 billion financing facility for Pakistan until 2028.

Asked whether Pakistan had sought additional financial support from Saudi Arabia, the minister rejected the suggestion. He said no additional support was needed because the country's reserves can cover more than three months of import bills. Through raising funds from capital markets, that capacity will be raised to the equivalent of four months of imports by the end of this year, he said.

On the prospects for the $10 billion 'Exchange Stabilization Support Facility' (ESSF) sought from the United States in July, Aurangzeb signalled an attempt to lower expectations built up over recent months. He said the focus of the July request had been access to international markets, and Pakistan had gained that access.

In this context he cited Pakistan's $3 billion bond issued last September, against which $6 billion in purchase orders were received. The finance minister said if the ESSF materialised it would work as a liquidity support fund and would be a great thing, but if it did not, there were alternative plans: more Eurobonds and Panda bonds would be issued, and there was also a plan for rupee-denominated, dollar-payable bonds.

He said he had held talks with 70 to 80 institutional investors at the Bangkok meetings, and offers to invest in five-year and ten-year bonds were also coming in. Pakistan, he said, was clearly planning with the period after the IMF programme in mind.

Aurangzeb also said Pakistan views cooperation with the United States from a broader perspective. In his view, the US Export-Import Bank (Exim Bank) and the Development Finance Corporation (DFC) need to play a role in supporting American investors and exporters in Pakistan, and that is the real financing and real loan support.

Meanwhile, the finance minister said the IMF executive board will meet next December to approve the release of a $1.2 billion loan tranche to Pakistan.