Pakistan, Saudi Arabia: What Riyadh's Economic Lifeline Means for Islamabad

Pakistan's widening trade deficit and rising debt and liability payments are the result of a burgeoning energy bill that has depleted the country's foreign exchange reserves. Typically, a country's export earnings offer a source of foreign currency, in many cases U.S. dollars. However, Pakistan's imports are outpacing its exports, causing hard currency to flow out of the country at such an alarming rate that the government is taking urgent measures to remedy the situation. These measures include curbing imports on certain non-essential goods, devaluing the country's currency to make exports cheaper and offering incentives to Pakistani nationals abroad who send home remittances. In addition, Khan plans to discuss further loans when he visits Malaysia and China on Oct. 28 and Nov. 3, respectively.

Why It Matters

The Saudi loan raises important questions about Riyadh's relationship with Islamabad. The kingdom may, for example, expect Pakistan to cool its growing security partnership with Iran. Relations between Riyadh and Islamabad stretch back decades, but Pakistan's increasingly warm relationship with Iran is a more recent development sparked by a shared interest in containing the threat of transnational jihadism branching out from the Islamic State node in Afghanistan. The growing relationship between Tehran and Islamabad will force Pakistan to maintain a balancing act between Iran and Saudi Arabia.

Khan's most recent trip to Saudi Arabia was the premier's second after his ruling Pakistan Tahrik-e-Insaf party came to power in August. Notably, his first diplomatic visit as prime minister was a trip to Riyadh. Although Khan has expressed concern about the death of journalist and Saudi critic Jamal Khashoggi, the premier's decision to attend the conference in Saudi Arabia is a clear indication of his country's priorities. Islamabad's dire economic straits will trump human rights concerns, prompting the Islamic world's only declared nuclear power to increasingly rely on Saudi Arabia, the Islamic world's wealthiest nation, as the two navigate onward.

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