More trouble for cash-strapped Pakistan? Saudi Arabia changing THIS key loan policy

Pakistan is struggling to secure loans from its ally countries as well as from multilateral financial institutions. The country is in a serious economic crisis and is not in a position to repay its debt. The situation is such that it may default on loan repayments. Inflation is high in the country and its forex reserves have declined as well. To come out of this crisis, Pakistan Prime Minister Shehbaz Sharif and Foreign Minister Bilawal Bhutto have been meeting several world leaders to secure funding or loan. Pakistan is also looking towards Saudi Arabia for financial aid. 

Earlier this month, Saudi state media reported the kingdom could boost its investments in cash-strapped Pakistan to $10 billion, from the $1 billion announced in August. Saudi Arabia may well increase the ceiling on deposits into the Pakistan central bank to $5 billion.

However, Saudi Arabia's finance minister Mohammed al-Jadaan made a key remark at the World Economic Forum in Davos related to the kingdom's loan policy. The finance minister said that the kingdom is changing the way it provides assistance to allies, shifting from previously giving direct grants and deposits unconditionally. It means, Saudi will no longer provide string aid and any financial assistance it will give to its allies will now come with a set of conditions as determined by the kingdom. 

The finance minister said that Saudi Arabia was encouraging countries in the region to enact economic reforms. "We used to give direct grants and deposits without strings attached and we are changing that. We are working with multilateral institutions to actually say we need to see reforms....We are taxing our people, we are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part," said the minister.

He simply meant that those seeking financial aid should not be dependent only on grants and must do reforms in their country. This can be seen as a message to Pakistan as well.  Saudi Arabia and other Gulf Arab states like the United Arab Emirates and Qatar have increasingly moved towards investing rather than extending direct financial aid, reported Reuters. 

Pakistan's Finance Minister Ishaq Dar has expressed hope of receiving a second USD 3 billion bailout from Saudi Arabia.

On January 6, Pakistan Prime Minister Shehbaz Sharif held talks with International Monetary Fund (IMF) chief Kristalina Georgieva to break the deadlock over the release of the next tranche of assistance for the cash-strapped country. The global lender has refused to issue the new instalment of the already agreed loan since Pakistan was not living up to the promises it made when the stalled loan of USD 6 billion was restored last year.

Prime Minister Sharif also sought relaxation in the demand to increase electricity prices to compensate for the deviation of around Rs 500 billion from the annual circular debt management plan. These remain the major stumbling blocks in reaching an initial understanding of a staff-level visit by the IMF to Pakistan. (With agency inputs)