Saudi Arabia's $1.5b to Pakistan

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Saudi Arabia has given $1.5 billion (Dh5.5 billion) to Pakistan to bolster the country’s falling foreign currency reserves and help cement security ties between the two countries. Senior officials at the finance ministry in Islamabad and the central bank in Karachi said that at least half of the funds, which were deposited in March, came as a grant. “The Saudi leadership has given these funds to Pakistan to help the rupee,” said one central bank official. “The other half [of the funds] could also eventually become a grant.” The injection of Saudi money will lift Pakistan’s liquid foreign reserves about 18 per cent and offer a boost to a struggling economy.

The Saudi support to Pakistan follows a mid-February visit by Salman bin Abdul Aziz Al Saud, Saudi crown prince, amid suggestions that Saudi Arabia is seeking an expansion of its security ties with Pakistan.

In February a senior Pakistani intelligence official told the Financial Times that Saudi Arabia was seeking “a large number of [Pakistan] troops to support its campaign along the Yemeni border and for internal security”. The official confirmed that Pakistan’s agreement, during Prince Salman’s visit, to support the establishment of a “transitional governing body” in Syria was an important aspect of the deal. Islamabad had previously remained neutral and urged Syrian president Bashar Al Assad and his opponents to end the conflict peacefully.

The Pakistani rupee has appreciated more than 4 per cent in the past three weeks with officials pointing to the Saudi assistance as one of the reasons for its strengthening. But some believe there are inherent risks for Pakistan, which is fighting an internal battle with Taliban militants, in getting closer to Riyadh.

Historically, Pakistan has sought to maintain an even hand in public in its relations with predominantly Shiite Iran and largely Sunni Saudi Arabia.

During Prince Salman’s visit an Iranian minister threatened to send troops across the border in to Pakistan if Islamabad failed to secure the release of five Iranian border guards kidnapped in the country. Officials in Tehran alleged the guards were taken by hardline militants backed by Saudi Arabia. The Iranian guards have still not been released. “We have to be careful in how we pursue our relations [with Saudi Arabia],” said Farooq Hamid Khan, a retired brigadier and commentator on security affairs. “As long as our security relations with Saudi Arabia are for internal security duties, that can be managed but we must not extend ourselves beyond that.”

The Saudi assistance may help to support Pakistan’s weak economy though it cannot fund a long-term recovery, economists said. “The Saudi money for now has helped our reserves,” said Sakib Sherani, a former chief economist at the finance ministry. “But it’s early in the day. We need to build up on our progress. Pakistan’s economy needs to be put through other reforms too.” Last year, the IMF agreed to a $6.7bn loan programme for Pakistan. However, western diplomats say, Pakistan is riddled with challenges, notably energy shortages and domestic insecurity, which continue to deter investors. “In a country with major energy shortages, a low number of taxpayers and corruption in many areas, the Saudi money will help but only temporarily,” said one western diplomat in Islamabad.