Pakistan seals $1.2 billion Saudi oil deal

Pakistan and Saudi Arabia on Monday signed a deal for $1.2 billion loan to buy oil on deferred payments, bridging the foreign funding gap that was earlier identified by the International Monetary Fund.

Islamabad will pay 6% interest rate on the loan that it will utilise to buy crude oil from the kingdom, according to the agreement signed in the presence of Prime Minister Shehbaz Sharif and his cabinet members.

The Saudi delegation was led by Sultan bin Abdul Rehman Al Marshad, Chief Executive Officer of the Saudi Fund for Development-the entity that will provide the oil on deferred payments.

Pakistan had long been trying to get this facility but due to various reasons it was delayed for at least seven months. The government had assured the IMF in May last year that the country would obtain the $1.2 billion facility as part of the plan to bridge the $2.5 billion external financing gap.

Out of a total $5 billion external financing gap for the 2024-27 three-year IMF programme period, the $2.5 billion is estimated for this fiscal year. This included a $1.2 billion Saudi oil facility. However, the actual payment in this fiscal year may remain $500 million and the remaining amount will be disbursed in the next fiscal year, starting from July.

The monthly utilization is capped at $100 million. The government is trying to make the facility effective from this month aimed at covering the external financing gap.

To bridge the gap caused by the delay in finalizing the facility, the government has already arranged a $300 million expensive commercial loan through a commercial bank.

Pakistan took the $300 million loan at the interest rates ranging from 7.2% to 7.7% - the first new non-Chinese financing facility in years. The commercial bank has arranged the facility from Gulf countries. A loan of $250 million had been arranged at an interest rate of one-year Secured Overnight Financing Rate (SOFR) plus 3% margin. This translated into roughly 7.2%.

Another $50 million is availed at one-year SOFR plus 3.5%, which is equal to 7.7% at today's rates, the sources said.

In September last year, the government took a $200 million commercial loan from the Bank of China at an interest rate of about 8.5%, according to the information the finance ministry shared with the Senate Standing Committee on Finance.

Saudi Arabia also signed a $41 million concessional loan agreement for the construction of a gravity-flow water scheme at Mansehra. Islamabad will pay 2% interest rate on the concessional loan.

Prime Minister Shehbaz Sharif appreciated the long-standing friendship between the Kingdom of Saudi Arabia and Pakistan and the efforts of SFD for providing financing to Pakistan in the fields of Health, Energy, Infrastructure and Education as well the for the reconstruction after the 2022 floods, according to a press statement issued by the PM's Office.

Sultan bin Abdul Rehman Al Marshad shared updates with the Prime Minister about the ongoing projects including Mohmand Multi-purpose Hydropower Project, Golan Gol Hydropower Project, Malakand Regional Development Project, and other projects funded through Saudi grants, it added.

The CEO, SFD assured early processing of the shared projects and also reiterated that the Kingdom of Saudi Arabia, under the leadership of the Royal Family, would extend all possible assistance and continued support to Pakistan, according to the PM's Office.

The prime minister said that the $1.2 billion facility will strengthen Pakistan's economic resilience by securing a stable supply of petroleum products while reducing immediate fiscal burdens.

The SFD will provide an amount of $41 million for Gravity Flow Water Supply Scheme at Mansehra, Khyber Pakhtunkhwa shall enhance access to clean drinking water for 150,000 local people of Mansehra and will be sufficient to meet the demand by 2040 by providing water to 201,249 people improving overall public health and quality of life.

Finance Minister Muhammad Aurangzeb also held a meeting with Sultan Abdulrahman A Al Marshad.

Saudi Minister of Finance Mohammed bin Abdullah Al-Jadaan has also invited Pakistan to attend the first edition of the high-level annual conference on challenges and opportunities facing emerging market economies, which is being jointly organized by the IMF and the Kingdom of Saudi Arabia in Al-Ula, Saudi Arabia, on February 16-17, 2025. The Finance Minister will attend the conference.

Al Marshad expressed Saudi Arabia's need for a skilled workforce to meet the demands of its growing market. To address this, he proposed a partnership with relevant government ministries and departments in Pakistan to offer training programs for young Pakistanis in modern and relevant skill sets to meet the labor market demands in Saudi Arabia.