The Saudi Fund for Development (SFD) has been authorized to conduct a study on increasing the Kingdom's deposit in Pakistan’s central bank to $5 billion from $3 billion earlier, the Saudi Press Agency reported on Tuesday. It will also assess the plan to increase investments in Pakistan to $10 billion.
The SFD provides soft loans and grants to developing countries as a means to bolster allies' economies and cement sustainable relations with the Saudi kingdom. The announcement comes a day after the Crown Prince and Saudi prime minister met with Pakistan’s army chief General Syed Asim Munir to review ways to enhance bilateral ties and strengthen cooperation.
Pakistan’s economy is strapped for funds after a gridlock with the International Monetary Fund over tax targets delaying disbursal of loan installments. The situation was made worse last year by devastating floods that inundated a third of the country and slashed its economic growth by half. Pakistan has relied on friendly nations to tide over the crisis. Yesterday in Geneva, the nation received commitments of more than $10 billion in assistance to recover from the floods.
The country’s foreign exchange reserves dropped to $4.5 billion last week — not enough for covering even one month of imports. The deteriorating economic outlook has triggered downgrades by international ratings agencies, forcing Pakistani authorities to announce austerity measures to reduce energy bills and save dollars.
The strong commitment from Saudi Arabia is much welcome, but will likely remain subject to resumption of the IMF program.