Saudi Arabia's $6 billion assistance package of loans and deferred payments to Pakistan will immediately relieve pressure on the cash-strapped government and improve its negotiating position during the tough bailout negotiations with the IMF, media reports said today.
In the deal announced on Tuesday after Prime Minister Imran Khan called on Saudi King Salman bin Abdulaziz, Riyadh said it will give Pakistan $3 billion in foreign currency support for a year and a further loan worth up to $3 billion in deferred payments for oil imports.
Pakistan's Finance Minister Asad Umar recently said the country may need more than $12 billion to plug its finances as the current-account deficit widens and foreign-currency reserves plummet.
The Saudi assistance will immediately push the official foreign currency reserves back to double digit in addition to lessening the stress on the external sector.
Saudi Arabia will place $3 billion cash deposits with the State Bank of Pakistan, in addition to providing a one-year deferred payment facility for the import of oil, worth up to $3 billion, according to the Pakistan Foreign Office.
The cash injection will immediately relieve pressure on the government and improve its negotiating position during the upcoming programme loan talks with the International Monetary Fund (IMF), starting from November 7, the Express Tribune said.
The cash assistance will lower the requirements to devalue the rupee, as the one-off assistance will - for the time being - improve the macroeconomic projections, the report quoted some independent economists as saying.
The Saudi package may provide breathing space to the government for dealing with economic challenges, but would not be enough to avoid the IMF facility, the Dawn newspaper reported.
It is believed that improved foreign exchange reserves would strengthen Pakistan's negotiating position in talks with the IMF, it added.
The situation could further improve if China also makes some commitments to rescue its 'all-weather friend', it said, noting that Khan is scheduled to travel to China on November 3 for his first visit.
Saudi Arabia agreed to bail out Pakistan during the second visit of the prime minister, as the agreement could not be reached during his September visit to the kingdom, it said.