The prime minister looked elated while announcing the financial assistance promised by Saudi Arabia after he visited the country twice in one month. His earlier effort bore no result and he was very skeptical to go back again unless assured that he will come back with something tangible. The chances looked glum as Saudi Arabia was also reported to be facing financial crunch due to fluctuating price of oil in international markets.
Between both his visits something happened in Saudi Arabia that compelled the tough crown prince to alter his earlier decision of not extending any help to Pakistan. The apparent reason was the murder of a Saudi journalist but probably that was not the only reason. The Saudi regime was somehow compelled to extend financial help to Pakistan with apparently no conditions attached that appears highly dubious but the real facts are expected to remain hidden in the labyrinth of inter-state relations.
Saudi Arabia agreed to provide Pakistan $3 billion in foreign currency support for a year to address its balance-of-payments crisis and also agreed to provide a one-year deferred payment facility for import of oil, worth up to another $3 billion. The facility will be reviewed and may be extended to three years, if found possible. PM Imran Khan got these two agreements signed during his visit to Saudi Arabia ostensibly to participate in the Future Investment Initiative conference.
The Kingdom also expressed interest in the development of mineral resources in Pakistan. In this regard, the federal government is to hold consultations with Balochistan government, following which a Saudi delegation will be invited to Pakistan to finalise matters. Saudi interest in mineral wealth of Pakistan is not hidden and this prospect appears to have a real chance of development. Moreover, Saudi Arabia also “confirmed its interest” in investing in a petroleum refinery in Pakistan.
The change in stance of Saudi Arabia is significantly helpful to Pakistan and Imran Khan’s government appears to have been visibly relieved. The terrible condition of national finances forced Imran Khan to eat his words and ask for financial assistance. The discomfort of taking a U-turn must be quite obvious but power dynamics are hard to follow.
It was a daunting task to approach IMF asking for a large financial tranche of $12 billion particularly after the US cautioned the international money-lender about the possibility of Pakistan using some of the loaned money to pay-off Chinese debts. Accordingly, Christine Lagarde, DG IMF did some tough talking when Pakistanis met her in Bali.
PTI government tried meeting some anticipated requirements of IMF by letting its currency depreciate and its interest benchmark increase along with hiking-up tariffs of gas and electricity. The Saudi pledge comes days after the State Bank warned inflation could double in the coming year -hitting 7.5 percent- while the country’s growth target rate of 6.2% would likely be missed.
IMF may also ask the details of CPEC investment portfolio that may be a sore point for the Chinese. The ruling party was very uncomfortable while taking steps that brought about a wave of inflation but steadfastly went ahead with belt-tightening measures as well as adhering to official austerity measures. The desperate financial conditions have compelled Pakistani government to resort to unpopular measures but it has no option but to adopt them.
There is no doubt that the financial structure of Pakistan is seriously flawed. Only a fraction of its population pays taxes and there is no financial discipline exercised by the state. The state is facing mounting losses in business enterprises it runs but it cannot shut them down because they provide much needed employment to people. The state is always under pressure to keep people employed as it is supposed to be the largest employer in the land. Such restraints end up letting successive governments to increase state manpower as they are under an obligation to provide help to people, particularly their constituents. People of Pakistan import double the amount worth of goods than the country can export.
The options therefore left to any government are to run for loans to pay off earlier debts and to request rich Arab states to extend help. The process is ongoing and consistent as no government has ever tried launching structural changes as it is never prepared to face the public’s backlash. It appears that the current government will also follow in the footsteps of its successors and will try to run the show by adopting short-term measures. For the time-being, however, the disaster seems to have been averted.