Islamabad, Nov 29 (FN Agency) Pakistan on Monday moved a step closer to receiving a $3 billion cash deposit from Saudi Arabia, but it comes tied to very strict conditions that Riyadh has imposed on the cash-strapped nation. On Monday, the State Bank of Pakistan inked an agreement with the Saudi Fund for Development (SFD) for the $3 billion loan. Earlier, on Saturday, the Pakistan cabinet approved two loan agreements worth $4.2 billion with Saudi Arabia, including the $3 billion cash deposit that the kingdom has extended for a period of one year but can withdraw it anytime by giving a 72 hours notice, the tribune.com.pk reported.
Pakistan has to pay 4% interest on the $3 billion cash deposit and 3.8% on the oil on deferred payment facility, according to the terms. Unlike in the past, this time there is no option for rollover of the Saudi loan and the country will have to return it at once after one year. The interest rate of 4% on the cash deposit is one-fourth times higher than the previous similar facility, which Pakistan had obtained at a 3.2% interest rate. At the new rate, Pakistan will pay $120 million interest on the loan – up by $24 million as compared to the 2018 facility. Saudi Arabia had announced the financial assistance at the conclusion of Pakistan Prime Minister Imran Khan’s visit to the kingdom last month. Sources told the daily that Pakistan had to accept tough loan conditions due to the prevailing external sector vulnerabilities. They said that talks for another similar loan facility from a friendly country were also underway, which were expected to be concluded soon. The cabinet also approved to avail $100 million per month oil facility on deferred payment for one year. The country will pay 3.8% interest on the amount. The sources said that under the agreement Pakistan will repay $3 billion to Saudi Arabia no later than one year from the date of the deposit. Saudi Arabia can also demand for immediate return of the money in case of a sovereign default by Pakistan, said the sources.
According to another important clause of the agreement, Pakistan will be bound 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. “Saudi Arabia has also spelled out the terms of defaults, which would lead to the immediate withdrawal of the cash deposits,” said the sources. A delay in timely interest payment would be deemed as default on the agreement. The failure by Pakistan to comply with any provision of the cash deposit agreement will lead to default. Also, Pakistan’s failure to service the public external debt of over $100 million will be deemed as default, said the sources. An end to the IMF membership will also be treated as default, said the sources. Adding to the tough provisions, in case of a dispute, Saudi law will be applicable. Pakistan has also surrendered its sovereign claim of immunity from suit, execution, attachment or other legal processes in relation to the $3 billion cash deposit agreement, the sources added. The daily quoted sources as saying that the office of the Attorney General for Pakistan had cautioned the finance ministry that waiver of the sovereign immunity may carry serious implications for the country.