Pakistan seeks support from Saudi, China to bridge US$5 billion funding gap

Despite initial delays, Pakistan is eyeing a debt rescheduling agreement with China and hopes to secure deferred oil payments from Saudi Arabia to address the USD 5 billion external financing gap, the Express Tribune reported on Thursday. And is relying on China’s assurances.

These efforts are part of Pakistan’s broader strategy to meet external funding requirements and meet conditions under the US$7 billion bailout package with the International Monetary Fund (IMF).

The Pakistani government has assured the IMF that it is optimistic about receiving support from China’s Exim Bank, which has committed to contribute more than USD 3.4 billion in project loans, and from Saudi Arabia, which has committed to contribute more than USD 1.2 billion. It has been agreed to provide US dollar oil facility. Reported by Express Tribune. These assurances were given by the executive directors of China and Saudi Arabia when the IMF board approved the bailout package.

Pakistan has also requested the IMF delegation to reconsider its requirement of significant changes in the Pakistan Sovereign Wealth Fund (PSWF) law by the end of December. Although the IMF has not yet responded, the government has hired Alvarez & Marsal Sovereign Advisory Services, led by former central bank governor Dr. Reza Baqir, to advocate its position.

In a briefing to the IMF on Wednesday, Pakistan reiterated its commitment to securing the necessary external financing, which will bridge the USD 5 billion gap between 2024 and 2027, the Express Tribune quoted sources as saying. Out of this, US $ 2.5 billion is required for the current financial year.

Pakistan had initially planned to raise US$3.2 billion, which included a US$1.2 billion Saudi oil facility. However, each month’s delay in finalizing this facility reduces the funds available in the fiscal year by US$100 million.

On the Chinese front, Pakistan is seeking rescheduling of about USD 3.4 billion of loans, of which USD 750 million is due within the next year. A significant portion of the Chinese debt, about US$2.7 billion, is scheduled to mature between October 2025 and September 2027, the Express Tribune reported.

Pakistan Finance Minister Muhammad Aurangzeb, who is currently attending the COP 29 meetings, will join the IMF discussions on Friday. During the IMF meeting, Pakistani officials and Alvarez and Marsal briefed the IMF about the need for adjustments to the PSWF Act. The government has committed to amending the law by December to bring it in line with IMF requirements, but has also proposed that the IMF should not insist on major changes. In particular, Pakistan suggests that the sovereign wealth fund should not be treated as a state-owned enterprise, as originally envisioned by the IMF.

In response to IMF concerns, Pakistan has agreed to make several changes to the PSWF Act, including the removal of Section 50, which would have allowed the sale of state-owned entities to foreign buyers. The law now requires amendments in several areas related to governance, revenue management, public asset management and state-owned enterprises (SOEs), the Express Tribune reported. The government has agreed to bring the fund in line with international standards, including a ban on direct sales of assets to foreign countries.

Pakistan also committed to removing special privileges for sovereign wealth funds that would have allowed it to acquire state-owned enterprises or participate in their privatization. If the IMF’s proposed amendments are passed by Parliament, all such privileges will be revoked.