China helps Pakistan to clear Saudi’s loan

By Our Staff Reporter

Islamabad: Pakistan has repaid a $3-billion loan extended by Saudi Arabia in 2018, using China’s emergency financial assistance against the backdrop of strained relations between Islamabad and Riyadh, people familiar with developments said Tuesday.

Islamabad has so far paid Riyadh $2 billion after Saudi Arabia insisted on repaying the loan earlier this year as a result of bilateral relations strained over Pakistan’s attempts to forge an alternative Muslim nation front through outreach to Turkey and Malaysia.

The people cited above said, on an anonymous basis, that Pakistan plans to repay the remaining $1 billion by early next year.

“This is simply a case of putting off a major economic problem for some more time. The Saudis may have been repaid but the other loan will become due some day,” one of the people cited above said.

Earlier this month, China bailed out Pakistan by raising the size of the 2011 bilateral currency swap deal by 10 billion yuan or around $1.5 billion, according to the Express Tribune newspaper, citing sources in the finance ministry and the State Bank of Pakistan. This assistance has been used to repay the Saudi loan.

China raised the currency swap agreement instead of extending the commercial loan so that the new $1.5 billion loan would not reflect on the Pakistani government’s books or be viewed as part of the country’s external public debt. Pakistan has used the currency swap facility since 2011 to repay foreign debt and keep its foreign currency reserves at a safe pace, according to the study.

Saudi Arabia was also upset by Pakistan’s criticism of the kingdom’s handling of the Kashmir issue, particularly after the Indian government had abolished the special status of Jammu and Kashmir in August 2019.

The strain in Pakistan-Saudi Arabia is evident from the fact that Riyadh did not roll over the $3-billion loan duration against the background of economic difficulties caused by the Covid-19 pandemic. The $3.2-billion oil credit facility extended to Pakistan by Saudi Arabia in 2018 has also been suspended for one year.

“Saudis, moreover, in the past never insisted on the repayment of loans, but that did not happen this time. The message from Riyadh was clear that it wanted its money back,” the Dawn newspaper reported on Tuesday.

“The Saudi attitude, some say, stemmed from its unease over Pakistan’s foreign policy direction, especially its relations with Turkey and Iran,” the report added.

The Indian Army chief’s recent visit to the United Arab Emirates (UAE) and Saudi Arabia has also spurred efforts by Islamabad to repair ties with Riyadh. On Monday, Saudi Arabia’s envoy to Pakistan, Nawaf bin Saeed Al-Maliki, met Prime Minister Imran Khan to discuss bilateral cooperation.

“The resolve to further strengthen the strong, longstanding Pakistan-Saudi Arabia fraternal ties was reaffirmed,” Pakistan’s Foreign Office said in a statement.

A Saudi Arabian delegation, possibly led by the foreign minister, is expected to visit Pakistan before the end of the year, and this is likely to be followed by a visit to the kingdom by a delegation led by a senior Pakistani minister, the people said.

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