Saudi Arabia supporting Pakistan’s economy with cheap loans
Saudi Arabia has once again stepped
in as Pakistan’s most reliable source of low-cost foreign funding, rolling over
$5 billion in loans at a concessional 4% interest rate — nearly a third cheaper
than Chinese cash deposits and less than half the cost of international
commercial borrowing.
According to official documents,
Riyadh has been annually rolling over two cash deposit facilities, contracted
for one year each, without imposing additional charges. A $2 billion facility
is due this December and is expected to be extended again, while another $3
billion loan, tied to IMF program requirements, matures in June 2026.
The IMF has directed Pakistan’s
three main bilateral lenders — Saudi Arabia, China and the UAE — to maintain
their $12 billion in cash deposits until the program ends. These deposits
currently make up the majority of the State Bank’s $14.3 billion reserves.
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Despite IMF backing, Islamabad has had to purchase more than $8 billion from the local market to settle debt repayments. The government also leans heavily on credit guarantees from multilateral lenders to access global markets, as IMF approval alone no longer assures investor confidence.
The Saudi rollover coincides with a
landmark Pakistan–Saudi defense pact signed this week. While some speculated
about its economic dimension, the Foreign Office clarified that defense and
economic cooperation run on “parallel but complementary tracks” under the
Pakistan-Saudi Supreme Coordination Council.
Higher costs elsewhere
While Saudi loans remain the cheapest at 4%, Pakistan pays 6.1% on $4 billion
worth of other cash deposits priced at SOFR plus 1.72%. A $1.2 billion Saudi
oil facility carries a flat 6% rate.
Chinese loans, mostly due between
March and July 2026, are also expected to be rolled over under IMF conditions.
These include a $2.1 billion facility refinanced for three years at around 4.5%
and a $1.3 billion Industrial and Commercial Bank of China loan at a flat 4.5%.
However, others range between 6.5% and 7.3%.
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Commercial borrowings remain the costliest. Standard Chartered extended $400 million at 8.2%, while UBL arranged $300 million at 7.2%. Even with partial guarantees from the Asian Development Bank, a $1 billion, five-year syndicated loan came at 7.22%.
The UAE initially lent at 3%, but
its latest $1 billion loan carried 6.5%, reflecting tightening conditions ahead
of the IMF program.
For now, Saudi Arabia’s concessional
support is helping Islamabad keep its external account afloat — providing
breathing space as the government struggles with high-cost borrowings
elsewhere.
Source: Express Tribune