Pakistan receives $2 billion in Saudi financial support

By Asif Shahzad

ISLAMABAD (Reuters) -Pakistan has received $2 billion in financial support from Saudi Arabia, Finance Minister Ishaq Dar said on Tuesday, a day before the International Monetary Fund’s board is expected to give final approval for a much-needed $3 billion bailout.

“I thank Saudi Arabia on behalf of the prime minister and army chief,” Dar said in a recorded video statement, terming it a “great gesture” from the longtime ally.

Saudi Arabia deposited the funds with the central bank, Dar said, boosting foreign exchange reserves when Pakistan had been left with barely enough to cover a month of controlled imports.

Saudi Arabia pledged the funds in April, but had held off depositing the money with the State Bank of Pakistan until it was sure that the IMF bailout would be forthcoming.

“It reflects the growing confidence of our brotherly countries and the international community in Pakistan’s economic turnaround,” Prime Minister Shehbaz Sharif said.

Teetering on the cusp of a sovereign debt default, Pakistan secured a last-gasp $3 billion IMF bailout on the last day of June, though it still needs approval from the IMF board, which is meeting on Wednesday.

Under the nine-month arrangement, Pakistan will receive about $1.1 billion upfront and the IMF will stagger disbursements of the rest.

The IMF deal will unlock more bilateral and multilateral financing in addition to the money from Saudi Arabia, and Dar has said that he expects Pakistan’s foreign exchange reserves will have risen to $15 billion by the end of this month.

Fitch credit rating agency on Monday upgraded Pakistan’s sovereign rating to CCC from CCC-, and the bailout has brought some relief to investors in the country’s stocks and bonds.

Sharif’s coalition government, which is due to face a national election later this year, has to undertake more painful fiscal discipline measures to satisfy the IMF, and the central bank has raised its policy interest rate to a record high of 22% while ordinary Pakistanis are struggling with inflation running at about 29%.