The federal cabinet on Saturday approved two loan agreements with Saudi Arabia worth $4.2 billion including the $3 billion cash deposit that Saudi Arabia has extended for a one-year time period but can withdraw it at any point after providing a three-day notice.
As per the terms in the agreement, Pakistan will be paying 4% interest on the cash deposit and 3.8% on the oil on deferred payment facility. Unlike in the past, there is no option for rollover of the Saudi loan and Pakistan will have to return it at once after one year.
The federal minister for information and broadcasting Fawad Chaudhry said, “The cabinet has approved the $3 billion cash deposit agreement and $1.2 billion oil on deferred facility agreement through the circulation of summaries.” The minister added that the Saudi package will also aid in stabilizing the rupee-dollar parity.
According to reports, the finance ministry said that the $3 billion cash facility has been secured at an interest rate of 4%. The rate is higher by one-fourth times than the previous similar facility that Pakistan had obtained at a 3.2% interest rate.
Pakistan will pay $120 million interest on the loan under the new rate which is up by $24 million when compared with the 2018 similar facility.
At the conclusion of prime minister Imran’s visit to the kingdom last month, Saudi Arabia had announced financial assistance to Pakistan.
As per reports, Pakistan had to agree to stringent loan conditions owing to the prevailing external sector vulnerabilities. The reports say that talks for another similar loan facility from a friendly country were also underway, which were expected to be concluded soon.
The cabinet also green-lighted the availing of $100 million per month oil facility on deferred payment for one year. According to reports, “The country will pay 3.8% interest on the amount”.
Reports suggest that in adherence to the agreement Pakistan will repay $3 billion to Saudi Arabia no later than one year from the date of the deposit. The kingdom can also demand to immediately return the money in case of a sovereign default by Pakistan, as per reports.
As per another important clause of the agreement, Pakistan will be obliged to return $3 billion to Saudi Arabia within 72 hours of a written request by Saudi Arabia at any time during the term of the agreement.
Reports said, “Saudi Arabia has also spelled out the terms of defaults, which would lead to the immediate withdrawal of the cash deposits”.
A delay in the interest payment would be considered as a default on the agreement. The failure by Pakistan to comply with any provision of the cash deposit agreement will lead to default. Pakistan’s failure to service the public external debt of more than $100 million will be seen as a default.
According to reports, the finance ministry sources say that in case of a dispute, Saudi law will be applicable. Pakistan has surrendered its sovereign claim of immunity from suit, execution, attachment, or other legal processes in relation to the $3 billion cash deposit agreement as per the reports.
The reports said that the office of the Attorney General for Pakistan had warned the finance ministry that waiver of the sovereign immunity may carry serious implications for the country.
However, according to reports, the finance ministry is confident that such a situation would never occur as Pakistan has never defaulted on its international payments obligations.