Saudi package

At a time when the rest of the world is keeping a safe distance from Saudi Arabia over the killing of journalist Jamal Khashoggi, Pakistan finds itself drawn ever closer to the kingdom. In the words of Prime Minister Imran Khan, we are “desperate” for money and Saudi Arabia has been a reliable source of foreign currency. So it proved once again as Imran Khan was one of the few world leaders who did not pull out of the Future Investment Initiative conference in Riyadh and managed to secure an immediate $6 billion rescue package from the Saudis. Saudi Arabia will deposit $3 billion in the State Bank of Pakistan for one year to help shore up our foreign currency reserves and provide a further $3 billion of oil on a deferred payment with the option of renewing that for another two years.

It is a sign of how dire the situation is that the government has said it will still go to the IMF for another bailout. Pakistan faces a current account deficit of $18 billion. An IMF team is due in the first week of November for talks on the size of loan that Pakistan would require. This would suggest that the Saudi assistance reduces what Pakistan needs from the IMF, but does not eliminate the need for an IMF bailout. The country still has another $12 billion shortage to cover. The government has blamed the previous PML-N administration for leaving the country in such a mess. The question is if the PTI has learned from the mistakes of its predecessors or whether it will continue down the same path.

The main reason Pakistan is in a crunch situation right now is that the loans the country took from China to finance CPEC projects added to its already considerable debt burden. The assumption under which these loans were taken was that CPEC initiatives would boost our exports to such an extent that they would not only pay for the Chinese loans and accumulated interest but also help us pay off existing debt. To put it mildly, that has not been the case. But there is no indication that the PTI government knows how to rectify this problem. Imran Khan will be visiting China next week and reports have suggested that he will request reducing the number of infrastructure projects. This may reduce Pakistan’s imports in the short term but will negatively impact our ability to produce exportable goods in the long run. Like all governments that came before it, the PTI looks like it is thinking only in the short term. It too will be in hock to the IMF and forced to follow their ruinous structural adjustment policies. The PTI had promised a new way of thinking but it is delivering more of that same. For now, though, the government can celebrate that it has managed to somewhat ease the economic crisis – for now.