SAUDI ARABIA EXTENDING PAKISTAN SPECIAL OIL FACILITY OF ABOUT $ 6 BILLION
SHAMIM AHMED RIZVI
July 28 - Aug 03, 2008
As in the past Saudi Arabia has once again come to Pakistan's rescue in present financial difficulties by extending its special oil facility of about $ 6 billion during 2008-09 on defer payment basis. This would greatly help Pakistan to manage its balance of payment account during its acute ongoing financial crunch.
This gesture of king Abdullah Bin Abdul Aziz is not for a particular person or government but for the people of Pakistan. As a true friend of Pakistan, the king has always been in the forefront to bailout Pakistan whenever it is in the soup.
After the nuclear tests in May 1998, when international sanctions were poised on Pakistan, it was the Saudi Kingdom which came to Pakistan's help and extended the oil facility rescuing the country from a total economic chaos. Even before the announcement of the budget for the current financial year, King Abdullah bin Abdul Aziz provided a grant of $300 million to Pakistan to make essential foreign payments.
The present Saudi assistance came in response to a request by Prime Minister Syed Yousuf Raza Gillani and PPP Co-Chairman Asif Ali Zardari, who met the Saudi monarch and submitted the request for help. Pakistan is at present getting 110,000 barrels of crude oil per day from Saudi Arabia under a sixty day deferred payment mechanism. However, because of the massive trade deficit of over $20 billion over the last financial year, it was becoming difficult for Pakistan to meet its foreign payment obligations. This much-needed Special Oil Facility (SOF) would go a long way in overcoming the financial crunch. Saudi Arabia is playing an important role in the development of Pakistan's economy and several companies are engaged in different sectors. The Kingdom has also shown keen interest to acquire large tracts of land in Pakistan and invest and the produce would not only be exported to Saudi Arabia but also help the country meet its vital food requirements.
Quoting Pakistan Minister for finance Naveed Qamar, Financial times of London reported that Saudi Arabia has agreed, in principle, to defer payments for crude oil sales to Pakistan, expected to be worth about $ 5.9 billion during Pakistan's 2008-09 financial year. The agreement would provide a significant boost to the economy just when it is coping with fast-mounting political and economic difficulties, the FT said. "There is an agreement in principle to defer oil payments. The modalities are being worked out", Finance Minister Naveed Qmar was quoted as saying in an FT interview. Qamar said he would not discuss the time span for which payments on Saudi oil shipments would be deferred, but an official from the Petroleum Ministry told the FT that the agreement involved deferring payments until at least June 2009 when the financial year would end. It was not clear if the deferred payments would be paid back. One western diplomat, familiar with Saudi ties to Pakistan, said that the Saudi government in 1998 began supplying crude oil under a deferred payment plan after Pakistan carried out its maiden nuclear tests and came under international sanctions.
In that previous case after three years of deferred payments, the Saudis practically wrote off the payments. It would be interesting to see if there is going to be a write-off in future of the deferred payments now under discussion. According to Pakistan officials Saudi Arabia sells about 110000 barrels of crude oil daily to Pakistan or about 40 million barrels a year which at present prices of crude in the international market amount to $ 5.8 billion.
No doubt the Saudi assistance is of great value and must be appreciated but the country needs to learn to stand on its own feet. For this the Government must draw up a far-sighted strategy for the development of various sectors including oil and gas exploration, IT exports, diversification of trade by tapping unexplored markets and reducing imports of luxury items to offset the trade deficit.