Mr Muhammad Hamza Tanvir is an independent journalist and a political analyst, focusing primarily on regional and global strategic and political issues. He has authored numerous articles for different national and international publications.
Israel, Saudi Arabia, and Pakistan
Pakistan has recently acquired a loan of $3 billion from the Kingdom of Saudi Arabia (KSA) due to the unstable economic plight of the country. The relations between the two countries have seen a huge gulf in the recent past due to the inclination of Pakistan towards the Chinese bloc. The loan provided by Saudi Arabia has strict conditions, thereby increasing Pakistan’s debt.
As per the experts in the realm of international relations, this loan could limit the sovereignty of Pakistan as it would have to take into account the interests of Saudi Arabia while deciding its relations with other countries, especially China. The recent statement of Prime Minister Imran Khan about not being a part of any international bloc can also be seen as a ramification of the indirect Saudi pressure. In the past, this pressure had coerced Pakistan to withdraw from the Kuala Lumpur summit.
Keeping in mind, the notion that “beggars can’t be choosers”, it can be understood easily that tough days are waiting ahead for the country. Pakistan’s relations with China can also see a hard time as the former would have to please the US-allied Saudi Arabia to keep its economy stable and to refrain from being blacklisted in the Financial Action Task Force (FATF) – which is now seen more as a political forum rather than a technical one.
Pakistan is under constant pressure from international institutions and First World countries due to its inclination towards the Chinese bloc and bad economic conditions. In the recent past, the IMF has also rejected Pakistan’s plea to keep a way open for borrowing from the State Bank of Pakistan for debt repayment.
The Loan from Saudi Arabia to Pakistan
According to Fawad Chaudhry, Pakistan’s federal minister for information and broadcasting, Saudi Arabia has acceded to grant a $3 billion cash deposit to Pakistan for a period of one year on the condition that the state would return it anytime on a 72 hours notice. The cabinet has approved the cash deposit agreement worth $3 billion, along with $1.2 billion worth of oil supplies through the circulation of summaries.
Pakistan has to return the loan after a period of one year. The country has no option for rollover, unlike in the past. Moreover, Saudi Arabia can ask Pakistan to return the money at once on a three-day notice even within the duration of one year. According to Express Tribune’s sources, the cash loan has been granted by Saudi Arabia at an interest rate of 4%. Pakistan had obtained a similar amount of loan facility previously, at a 3.2% interest rate, making the new rate one-fourth times higher than that.
According to Pakistan’s agreement with Saudi Arabia, the state will now pay $120 million interest on the loan, hence, increasing its overall debt. The Saudi government has also set the terms of defaults, which would result in the immediate withdrawal of the cash deposits. The Saudi government would deem any delay in the timely interest payment as a default on the agreement. Failure in compliance with any provision of the cash deposits by Pakistan would also lead to default.
Pakistan’s incompetence to pay back the public external debt of over $100 million will also be considered as default. Loss of Pakistan’s IMF (International Monetary Fund) membership will also be treated as default. The most worrisome clause of the agreement, as per the sources of the Dawn, is that in case of any dispute, Saudi law will be applicable.
This raises a question over the sovereignty of Pakistan as all the other agreements are dealt with in the International Court of Justice (ICJ). But Pakistan has compromised its sovereignty by surrendering its claims of immunity from execution, suit, attachment, or other legal processes in relation to the agreement with Saudi Arabia.
All these stipulations mean that the Kingdom of Saudi Arabia can withdraw this money at any time if the two countries have contradictory views on any issue. In the past, Saudi Arabia asked for the premature return of a part of its $6.2 billion loans given in 2018, after Shah Mehmood Qureshi, the foreign minister of Pakistan, criticized the Organisation of Islamic Cooperation (OIC) for its silence on the Indian brutalities in Indian-held Kashmir.
IMF’s Control over the State Bank of Pakistan
In November 2021, the IMF rejected Pakistan’s plea to keep a way open for borrowing from the State Bank of Pakistan (SBP) amidst the persistent financial crisis. The monetary watchdog also barred allowing the country from conducting any meaningful accountability of the central bank of the country. The central bank’s profit could also not be transferred totally to the federal government until it gets covered to return its liabilities.
Until then, at least 20% of the central bank’s profit will remain in the SBP’s coffers. The IMF has only accepted the federal government’s right to designate State Bank members and retain a finance secretary on the board. The monetary body also barred Pakistan from taking loans from SBP equivalent to 2% of the gross domestic product (GDP).
According to the IMF program, Pakistan cannot borrow from the SBP till September 2022 but the government of Pakistan has permanently closed this door through legislation. This situation is gruesome for the future and sovereignty of the country; no country in the world can survive without having a stable economy.
Impacts on the Sovereignty of Pakistan
The stipulations of Pakistan’s loan from Saudi Arabia and the restrictions of the IMF depict that the knot around the neck of the country is getting tighter. These conditions and the weakening economy of the country have raised several questions about the sovereignty of Pakistan. Many people in Pakistan and the rest of the world think that the United States is using international institutions like IMF and FATF to pressurize its political opponents. These conditions and the increasing pressure on Pakistan through FATF will have a direct impact on the international relations of the country.
The recent statement by Prime Minister Imran Khan, in which he stated that Pakistan must not become a part of any bloc, is also deemed a result of the indirect implication of the loan granted by Saudi Arabia to the country. He also urged both the US and China to de-escalate the tensions. Although his statement about abstaining from being part of any bloc may not be due to international pressure, yet Pakistan would have to adopt a prudent approach in its global diplomacy as it cannot afford to lose any of its friends from any bloc.
Pakistan is not in a position to annoy China as it has helped the country in every calamity including the recent crisis when Saudi Arabia asked for the return of its loan on very short notice. Pakistan’s divergence of views with Saudi Arabia on any international issue could result in the Saudi request to pay its debt which could submerge Pakistan in hot waters.
Pakistan must adopt a prudent approach in dealing with its foreign relations. Deterioration of Pakistan’s relations with any of the superpowers or their close allies could be harmful to the country given its economic plight. If Pakistan wants to be white-listed from the FATF, it would have to please the US but that is nearly impossible as the country is close to China which is its all-weather friend.
Pakistan should also not antagonize China at any cost otherwise it will lose huge support internationally. Pakistan’s closer ties with Iran can also irk Saudi Arabia. Thus, given Pakistan’s national debt, it only has one option and that is to stabilize its economic condition. The panacea to the economic ills of Pakistan lies only in increased industrialization which could provide new jobs and reduce the size of its imports.
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