Good news from KSA

Pakistan’s dwindling foreign exchange reserves may see some respite in the form of an extension to the $3 billion deposit that Saudi Arabia gave Pakistan last year. Saudi Minister of Finance Mohammed al-Jadaan has said his country is “finalising the extension” of the deposit during an interview on the sidelines of the World Economic Forum in Davos, Switzerland. This would suggest significant progress has been made in the past three weeks, since a joint statement on May 1 — relating to Prime Minister Shehbaz Sharif’s tour of Saudi Arabia — only mentioned this as a “possibility”.

On that note, we are also hopeful that more assistance could be forthcoming, since “other options” for economic support were also referenced in the May 1 statement, and Jadaan reiterated in the recent interview that Pakistan is an important ally and Riyadh would stand behind the country. Also, if the government in Islamabad can keep itself in place, the famously close relationship between the Sharifs and the Saudi royal family may increase the likelihood of Pakistan receiving further benefits.

Shoring up foreign reserves is one of the biggest economic challenges for the government, which is already drawing flack for the imposition of new restrictions on imports. The rules already restrict several relatively low-cost items such as personal hygiene accessories and other things without equivalent local substitutes, and social media is rife with complaints about foreign travellers even being stopped from bringing “banned” gifts, such as chocolates.

Meanwhile, although the International Monetary Fund has offered to expand its assistance by putting another $2 billion on the table, the entire loan programme hinges on the withdrawal of fuel subsidies, which the government has deferred till the end of next month. But even if that money comes in, despite the recent tightening of the trade deficit, with only enough money to cover about two months’ worth of exports, the balance of payments situation remains unsustainable. The end result is that, whatever amount of foreign assistance is available, the government will still need to push through several more potentially painful and unpopular measures if it is to normalise the forex reserve situation. In the meantime, we will continue flirting with default.