SAUDI ARABIA TO PROVIDE OIL ON DEFERRED PAYMENT

SYED FAZL-E-HAIDER
Nov 17 - 23, 2008

President Asif Ali Zardari had left for Saudi Arabia on two-day official visit to Saudi Arabia on November 04 in his latest effort to seek financial support from a traditional ally to avoid the most unpopular loan option from IMF, which would impose tough conditions that could undermine his support among the people. Zardari's visit was aimed at soliciting Saudi support for the 'Friends of Democratic Pakistan' initiative and to seek crude imports of $5.9 billion on deferred payment during the current fiscal year. According to the official sources, Saudi Arabia had agreed to provide oil facility to Pakistan on renewable deferred payment for six months and provide tangible assistance in easing Pakistan's balance of payments. The country's annual oil bill has risen to $12 billion from $3 billion in five years.

By securing help from allies and other multilateral lenders, the country was hoping to avoid a loan from the International Monetary Fund (IMF), which entails painful conditions. The analysts however believe that the donor countries including Saudi Arabia would not offer their help till Islamabad reaches an agreement with the IMF.

Without giving details of any specific assistance, Prime Minster's Economic Adviser Shaukat Tareen told Pakistani state television that Saudi Arabia has 'positively' assured Pakistan of economic help. He said that Saudi King Abdullah Bin Abdul Aziz had assured Zardari of help and had responded 'positively' to the request regarding oil payments. Saudi King Abdullah Bin Abdul Aziz reportedly supported the country's 'Friends of Pakistan' initiative in his meeting with the visiting president Zardari, but he did not say a single word on giving the country any cash money to bail it out of the financial crisis.

The balance-of-payments crisis has left the nuclear-armed country little option but to accept IMF help. If Saudi Arabia and recently constituted "Friends of Pakistan" forum comprising Britain, France, Germany, the US, China, the UAE, Canada, Turkey, Australia, Italy and the EU did not help Pakistan immediately, the country would ultimately go to the IMF as last option, according to the analysts. West has already told Islamabad that it would assist only after IMF's involvement, as the Fund could monitor the government's economic policies and ensure their financial help is being used properly. Pakistan has reportedly decided to place formal request to IMF after the meeting of Friends of Pakistan that is to be held in Dubai on November 17, as the country wants to avail this opportunity first.

For its $6 billion stabilization programme, IMF has reportedly prescribed the country to curtail government expenditures, devaluation of local currency, tax increases, slower economic growth and big increase in discount rate. Pakistan has reportedly assured the IMF that it will completely free the exchange rate after signing a $4.8 billion loan agreement. The IMF will provide to Pakistan a loan of $1.3 billion for improving the financial condition of the government and $3.5 billion for alleviation of poverty from the country. Final decision regarding IMF funding would be taken on the conclusion of President Zardari's visit to Saudi Arabia and 'Friends of Pakistan' meeting in Abu Dhabi this month. Analysts however believe that IMF agreement is a prerequisite for any debt rescheduling.

IMF and Saudi Arabia have reportedly reached an agreement under which Saudi Arabia will supply 100,000 barrels per day to Pakistan against the payment to be made late by one-year. These talks were recently held at the highest level but Pakistan will have to make an additional payment of $2 billion despite a decline in price of oil in world market.

Saudi Arabia has been the Pakistan's main foreign benefactors on a par with the U.S. and China. Saudi Arabia's relationship with the Pakistan People's Party-led government has not so far been warm. This lack of warmth is attributed to political changes in Pakistan, Islamabad's quest for an oil facility from Iran; a realignment of Saudi goals in the region and the non-implementation of agreements signed during King Abdullah's last visit to Islamabad. Saudi Sheikhs have reservations against Zardari's PPP-led coalition government and former prime minister Nawaz Sharif's isolation from the ruling coalition is an important factor, according to some political observers. Nawaz Sharif spent much of his nine-year exile in Saudi Arabia before he returned to Pakistan last year and remained close to many in the Arab kingdom.

Saudi Arabia had extended a special oil facility (SOF) to Pakistan under former Prime Minister Nawaz Sharif's government following imposition of economic sanctions against the country when it conducted nuclear tests in May 1998. Since the break-up of ruling coalition, differences between PPP leadership and Nawaz Sharif have intensified on many issues including presidential election after resignation of president Pervez Musharraf and reinstatement of supreme court judges.

The analysts believe with the support of his former ally Nawaz Sharif it could be easier for Zardari to ask the Saudi leadership Saudi oil facility on credit. In June when Nawaz Sharif's Muslim League was the part of the coalition government, Zardari-led delegation in Saudi Arabia had managed to obtain for Pakistan a highly crucial Saudi oil facility of 110,000 barrels a day on two years credit. Under the deal, Saudi Arabia had agreed to extend SOF to Pakistan to the tune of $4.82billion, equating to 110,000 barrels of oil per day. Saudi Arabia had also committed to invest several billion dollars in infrastructure investments in the south Asian country. The United Arab Emirates had also agreed to continue to provide oil to Pakistan on extended payment terms.

With a bilateral trade worth $5.7 billion, Pakistan is a major trading partner of Saudi Arabia. Pakistan imports over 80 per cent of its annual oil requirements from the Arab states including Saudi Arabia, Abu Dhabi, Qatar and Iran. According to an estimate, the country imports around 250,000 barrels a day from Saudi Arabia, 150,000 from Abu Dhabi, 18,000 from Qatar and 15,000 from Iran. The country exports raw cotton, textile products, furniture, carpets and rugs, footwear, sports goods and surgical goods, rice, fish, fruits, vegetables, spices and food items to Saudi Arabia. Last week, a Saudi-Pak investment conference at Riyadh sought setting up of a mutual investment fund and launch of an exclusive cargo airline to facilitate the business communities of the two countries to enhance trade. During his visit, Zardari will discuss ways to seek more investment from the Saudi Arab in energy, infrastructure development, agriculture and industrial sectors.