The federal cabinet on Saturday approved two loan agreements worth $4.2 billion reached with Saudi Arabia, including the $3 billion cash deposit that the kingdom has extended for a period of one year but can withdraw it anytime by giving a three-day notice.
Pakistan will pay 4% interest on the cash deposit and 3.8% on the oil on deferred payment facility, according to the terms agreed between both countries. Unlike in the past, this time there is also no option for rollover of the Saudi loan and the country will have to return it at once after one year.
“The cabinet has approved the $3 billion cash deposit agreement and $1.2 billion oil on deferred facility agreement through the circulation of summaries,” Federal Minister for Information and Broadcasting Fawad Chaudhry confirmed to The Express Tribune. The minister said that the Saudi package will also help stabilise the rupee-dollar parity.
The finance ministry sources said that the $3 billion cash facility has been secured at an interest rate of 4%. The rate is by one-fourth times higher than the previous similar facility that Pakistan had obtained at a 3.2% interest rate.
At the new rate, Pakistan will pay $120 million interest on the loan – up by $24 million when compared with the 2018 similar facility.
At the conclusion of Prime Minister Imran Khan’s visit to the kingdom last month, Saudi Arabia had announced financial assistance to Pakistan.
The sources said Pakistan had to accept tough loan conditions due to the prevailing external sector vulnerabilities. They added that talks for another similar loan facility from a friendly country were also underway, which were expected to be concluded soon.
The cabinet also approved to avail $100 million per month oil facility on deferred payment for one year. “The country will pay 3.8% interest on the amount,” said the sources.
The sources said that under the agreement Pakistan will repay $3 billion to Saudi Arabia no later than one year from the date of the deposit. Saudi Arabia can also demand to immediately return the money in case of a sovereign default by Pakistan, said the sources.
According to another important clause of the agreement, the sources said, Pakistan will be bound to return $3 billion to Saudi Arabia within 72 hours of a written request by Saudi Arabia at any time during the term of the agreement.
“Saudi Arabia has also spelled out the terms of defaults, which would lead to the immediate withdrawal of the cash deposits,” said the sources.
A delay in timely interest payment would be deemed as default on the agreement. The failure by Pakistan to comply with any provision of the cash deposit agreement will lead to default. Also, Pakistan’s failure to service the public external debt of over $100 million will be deemed as default, said the sources.
An end to the IMF membership will also be treated as default, said the sources.
The finance ministry sources said that in case of a dispute, Saudi law will be applicable. However, Pakistan has surrendered its sovereign claim of immunity from suit, execution, attachment or other legal processes in relation to the $3 billion cash deposit agreement, the sources added.
The Express Tribune had sent questions to the finance ministry spokesperson, Yousaf Khan, who is also the additional secretary in-charge. But till the filing of the story, the ministry did not reply to the questions about the cost of the $3 billion borrowing, the time period of the lending facility and the reasons for surrendering the sovereign immunity.
The sources said that the office of the Attorney General for Pakistan had cautioned the finance ministry that waiver of the sovereign immunity may carry serious implications for the country.
However, the finance ministry sources said that such an eventuality would never occur as Pakistan never defaulted on its international payments obligations.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ