Saudi Arabia remains Pakistan’s cheapest foreign lender: Report
text_fields
Islamabad: Saudi Arabia continues to be the primary source of low-cost foreign loans for Pakistan, charging an annual interest rate of just 4%, a media report said on Sunday.
Riyadh applied this 4%rate on two separate cash deposit facilities obtained by Islamabad in recent years, according to official records. Originally contracted for one year, these loans have yet to be repaid, with the kingdom rolling them over annually without imposing any additional costs, The Express Tribune reported.
The Saudi loans are approximately one-third cheaper than Chinese cash deposits and less than half the cost of foreign commercial borrowing. A USD 2 billion Saudi cash deposit facility is set to mature in December, and the Finance Ministry plans to roll it over again, sources said. Another USD 3 billion Saudi loan, obtained to cover the external financing gap under the IMF programme, will mature in June next year.
Under the IMF programme, Pakistan’s three bilateral creditors—Saudi Arabia, China, and the United Arab Emirates—are required to maintain their cash deposits until the three-year programme concludes. Collectively, these countries have provided USD 12 billion in deposits, forming the bulk of the central bank’s USD 14.3 billion gross foreign exchange reserves.
However, IMF programmes are no longer as effective in supporting Pakistan as they once were. The central bank had to purchase over USD 8 billion from the local market to meet maturing debt obligations despite the IMF package. The Finance Ministry is reportedly increasingly reliant on multilateral banks’ credit guarantees to access international markets, as the global lender’s “clean bill of health” alone is no longer sufficient.
While Saudi loans carry a 4% interest rate, Pakistan pays around 6.1% on four cash deposit facilities worth USD 4 billion. These facilities are priced at the six-month Secured Overnight Financing Rate (SOFR) plus 1.72%, making them significantly more expensive than Saudi deposits. Meanwhile, a Saudi Oil facility of USD 1.2 billion was obtained at a flat 6% interest rate.
Chinese facilities, maturing between March and July next year, are also expected to be rolled over in line with IMF conditions and Pakistan’s low foreign exchange reserves. Among the costliest foreign commercial loans was one from Standard Chartered Bank, which extended USD 400 million for six months at an interest rate of 8.2%, contracted at the six-month SOFR plus a 3.9% margin. Similarly, United Bank Limited arranged a USD 300 million loan for 10 months at an interest rate of 12-month SOFR plus 3.5%, equivalent to a 7.2% rate.
The UAE initially provided a USD 2 billion loan to Pakistan at 3% interest, but its most recent USD 1 billion facility was obtained at 6.5% in 2024 ahead of the IMF deal. Pakistan also secured a USD 1 billion commercial loan for five years at an estimated rate of 7.22%, despite partial guarantees from the Asian Development Bank to foreign lenders.
Chinese commercial loans to Pakistan are now being converted into Chinese currency from USD. The USD 2.1 billion equivalent Chinese commercial facility is refinanced for three years at roughly 4.5% interest. Likewise, a USD 300 million Bank of China loan is taken for two years at a 6.5% interest rate, another USD 200 million facility at 7.3%, and a USD 1.3 billion loan from Industrial and Commercial Bank of China was obtained at a flat 4.5% interest rate, according to The Express Tribune.
