Islamabad:
Saudi Arabia remains the largest source of cheap foreign loans to Pakistan, which rolls over $ 5 billion in loans at an annual interest rate of 4%-ca. one -third cheaper than Chinese cash deposits and less than half of the cost of foreign commercial borrowing.
Official items show that Riyadh charged an interest rate of 4% on two separate cash deposit facilities obtained by Islamabad in recent years. The loan, originally contracted for a year, has not yet been repaid. Government officials said the Kingdom has rolled it over annually without introducing extra costs.
A Saudi cash facility of $ 2 billion is set to mature in December, which the Ministry of Finance plans to have rolled again, sources say. They added that another $ 3 billion Saudi loans – obtained to connect the external financing gap under the IMF program – will mature in June next year.
The IMF has determined that Pakistan’s three bilateral creditors-Saudi Arabia, China and the United Arab Emirates shell maintain their cash deposits until the end of the three-year program. Together, these countries have delivered $ 12 billion in deposits and formed most of the central bank’s $ 14.3 billion gross currency reserves.
Unlike previous ones, the IMF programs no longer help Pakistan in a big way. Despite the package, the central bank had to buy over $ 8 billion from the local market to meet mature debt obligations. At the same time, the Ministry of Finance is increasingly dependent on the credit guarantees of multilateral banks to access international markets, as the global lender’s financial “clean health bill” is no longer sufficient on its own.
This week, Pakistan and Saudi Arabia signed a landmark strategic mutual defense agreement, which according to the Foreign Office reflects both nations’ common obligation to strengthen security, promote regional peace and jointly deter any aggression.
To a question from an express news correspondent about the financial aspect of the defense agreement, spokesman for the foreign office said the relationship between Pakistan-Saudi is multifaceted. Defense has been a very critical and important component of it. Just as defense is important, economic cooperation is also an important component. But at the same time within the overall ambition, this is different traces, the spokesman said.
He added that the Pakistan-Saudi relationship is monitored by the Pakistan-Saudi Supreme Coordination Council, an overall frame built on three pillars, one of which is financial. While these columns are interconnected, each one is designed to strengthen cooperation independently of the others. So economic cooperation remains robust, and we look forward to further elaborating on economic cooperation between the two countries, according to the spokesman.
Sources said that although Saudi loans have an interest rate of 4%, Pakistan pays about 6.1% on four cash deposits to a value of $ 4 billion. These facilities are priced for the six-month secured accommodation financing speed (SOFR) plus 1.72%, making them significantly more expensive than Saudi deposits. However, the Saudi oil facility is achieved at $ 1.2 billion at a flat 6% interest rate, sources added.
The Chinese facilities that mature between March and July next year are also expected to be rolled over in the light of IMF conditions and Pakistan’s low currency reserves.
Among the most expensive foreign commercial loans was one from Standard Chartered Bank that extended $ 400 million in six months to an interest rate of 8.2% in the last financial year. The loan was contracted on the six-month SOFR plus a 3.9%margin, the sources say.
Also, United Bank Limited arranged a $ 300 million loan in just 10 months at an interest rate of 12-month SOFR plus 3.5%, which was also equal to 7.2% interest, sources added. The UAE had initially given a $ 2 billion loan to Pakistan at an interest rate of 3%, but its last $ 1 billion facility was achieved to 6.5% in the 2024 prior to the IMF agreement.
Pakistan also obtained a $ 1 billion loan from the business banks for a period of five years at an estimated rate of 7.22%. Over 7.2% rate is paid despite the fact that the Asian Development Bank has given the foreign lenders partial guarantees, sources said.
Pakistan also uses Chinese commercial loans, which are now transformed into Chinese currency from USD. The rates of these Chinese facilities vary. The equal Chinese commercial facility of $ 2.1 billion is refinanced for a period of three years to approx. 4.5% interest, sources said.
Similarly, $ 300 million Bank of China loans is taken for two years at 6.5% interest, and another $ 200 million is achieved at 7.3% interest, sources added. A $ 1.3 billion loan from Industrial and Commercial Bank of China was taken at a flat 4.5% interest rate.
