Saudi Arabia forces Pakistan to repay loans in diplomatic spat

Islamabad will be sending its army chief to Saudi Arabia to try to resolve a growing diplomatic spat. Saudi Arabia is demanding Pakistan’s early repayment of a $3bn loan, which was part of a USD 6.2 billion package announced by Saudi in November 2018.

The dispute between the two long-time allies is putting pressure on the fragile external finances of Pakistan and pushing it further into the arms of its other traditional ally, Beijing.

Saudi Arabia has demanded Pakistan repay part of the $3bn loan while freezing a $3.2bn oil credit facility because of a dispute over how to deal with New Delhi on Indian-administered Kashmir.

The two sides are now locked in tough negotiations on repayment of the remainder of the debt. “The Saudis have asked for another billion dollars to be sent back,” said the president of a private Pakistani bank.

The Saudi loan to Islamabad was originally due to be repaid in instalments later this year and in 2021, while the deferred oil payment facility was intended to support Pakistan’s external payments position.

The government had resolved to send General Qamar Javed Bajwa, the army chief, to try to smooth over relations with Riyadh. Saudi Arabia has repeatedly ignored calls from Pakistan to take action against Indian government, which abruptly revoked Indian-administered Kashmir’s special status granting the former state a high degree of autonomy in August last year.

The Saudi resistance on Kashmir, with Riyadh blocking attempts to get the Mecca-based Organization of Islamic Cooperation to comment on the issue, was motivated in part by fear of angering India, one of the kingdom’s main trading partners, analysts said.

“It seems the Saudis didn’t appreciate the persistence of the Pakistanis on Kashmir,” said Arif Rafiq, president of Vizier Consulting. “China is pretty much becoming not just Pakistan’s main option but to some extent only option.”

“China immediately lent $1bn to Pakistan following the decision by Saudi Arabia to cut off aid and could potentially offer more,” a senior government official said.

“Within hours and not days of Saudi Arabia conveying its demand to Pakistan, China offered to place $1bn with our state bank [central bank],” said a senior government official. “Beijing has proven beyond doubt that they have an ironclad commitment to Pakistan’s future, prosperity and welfare.”

“Crown Prince Mohammed bin Salman has wanted a more balanced relationship with India that has made the Pakistanis extremely sensitive. It’s a significant low for Pakistan-Saudi relations right now. The relationship is in freefall,” said Sajjan Gohel, south Asia expert.