Responding to a question posed in the Senate, the Minister of Finance declares that the loan must be repaid in one year and bears interest at 4%
Finance Minister Shaukat Tarin responded to a Senate question on Friday on the details of the Pakistan-Saudi agreement under which Islamabad received a $3 billion “soft loan” to shore up the the country’s foreign exchange reserves, revealing that the money will remain on deposit for a year and must be returned in full at its conclusion.
On January 25, Senator Mushtaq Ahmed of the Jamaat-e-Islami had asked the Minister of Finance to reveal the details of the agreement. The question was postponed, with the answer tabled today (Friday), according to a statement issued by the Senate Secretariat.
In his response, Tarin said that the deposited amount of $3 billion has been deposited in the State Bank of Pakistan for one year against an interest rate of 4% per annum, which is to be paid quarterly. He said the repayment of the loan would be in one installment, adding that the law governing the loan was the “rules and laws of the Kingdom of Saudi Arabia”.
The terms of the deal had been a source of great debate, as early leaks had questioned the harsh terms imposed on Pakistan, unlike similar loans issued earlier. Unlike in the past, Pakistan does not have the option of rolling over this loan. The 4% interest rate is also 25% higher than the previous 3.2% facility Pakistan secured in 2018, with Islamabad set to pay $120 million in interest this year compared to the $96 million it won. he had to pay in 2019.
Since Pakistan is required to pay interest in quarterly installments, it would have to provide Saudi Arabia with $30 million every three months during the term of the loan. In accordance with Tarin’s disclosure of the application of Saudi law in the event of a dispute, sources within the Ministry of Finance said that Islamabad had waived its sovereign claim of immunity from prosecution, execution, seizure or other legal proceedings to secure the $3 billion cash deposit.
Saudi Arabia had announced that it was giving financial aid to Pakistan in the form of a $3 billion cash deposit and $1.2 billion in deferred oil payments following the Prime Minister’s visit. Minister Imran Khan in the kingdom in October 2021. A formal agreement between the State Bank of Pakistan and the Saudi Fund for Development was signed in November, with funds being deposited in December.
Pakistan has yet to start availing of the deferred payment facility for oil supplies, with Tarin telling the Senate on Friday that it is expected to begin next month.