Saudi Arabia Remains Key Source Of Low-Cost Loans For Pakistan

Saudi Arabia has solidified its position as Pakistan's primary source of affordable foreign loans, offering cash deposits at a low 4 per cent annual interest rate, significantly undercutting alternatives from China and commercial lenders, according to a report in The Express Tribune on September 21, 2025. This concessional financing, rolled over annually without extra costs, has become crucial for Islamabad amid depleting foreign reserves and ongoing International Monetary Fund (IMF) requirements. The kingdom's support underscores deepening bilateral ties, providing breathing room as Pakistan navigates a fragile economy marked by high debt servicing needs.

Official records highlight two key Saudi facilities: a $2 billion deposit maturing in December 2025, slated for renewal by the Finance Ministry, and a $3 billion loan extended in 2023 to bridge external financing gaps under the IMF's three-year program, due in June 2026. These loans are about one-third cheaper than comparable Chinese deposits and less than half the cost of market borrowings. The IMF mandates that Pakistan's three major bilateral partners—Saudi Arabia, China, and the United Arab Emirates (UAE)—sustain their $12 billion in combined deposits until the programme's end, bolstering the State Bank of Pakistan's $14.3 billion in gross reserves. Despite a $3 billion IMF bailout earlier this year, the central bank has spent over $8 billion from local markets on maturing debts, exposing the limitations of multilateral aid in stabilising finances.

Comparatively, non-Saudi options burden Pakistan with higher rates. Four $4 billion facilities from multilateral sources, priced at the six-month Secured Overnight Financing Rate (SOFR) plus 1.72 per cent, equate to around 6.1 per cent interest—still pricier than Saudi terms. A separate $1.2 billion Saudi oil facility carries a flat 6 per cent rate. Chinese loans, totalling several billion dollars and maturing between March and July 2026, are expected to roll over per IMF stipulations; these include a $2.1 billion facility refinanced at 4.5 percent for three years, a $300 million Bank of China loan at 6.5 percent for two years, a $200 million tranche at 7.3 percent, and a $1.3 billion deal from the Industrial and Commercial Bank of China at 4.5 percent. The UAE's support has shifted: an initial $2 billion loan at 3 percent was followed by a $1 billion facility in 2024 at 6.5 percent.

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Commercial borrowings prove even costlier, amplifying Pakistan's debt vulnerabilities. Standard Chartered Bank provided $400 million for six months at 8.2 percent (six-month SOFR plus 3.9 percent) in the last fiscal year, while United Bank Limited arranged $300 million for 10 months at 7.2 percent (12-month SOFR plus 3.5 percent). A five-year $1 billion syndicated loan from commercial banks, backed by Asian Development Bank guarantees, still incurs 7.22 per cent. These elevated rates reflect global lenders' risk premiums amid Pakistan's economic volatility, including inflation hovering near 10 per cent and a current account deficit. As Islamabad leans on bilateral allies for low-cost liquidity, experts warn that over-reliance could strain diplomatic relations if fiscal reforms lag. With reserves covering just two months of imports, sustained Saudi generosity remains a lifeline, though long-term sustainability hinges on export growth and IMF compliance.

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