Saudi Arabia has agreed to extend Pakistan's USD 3 billion debt repayment period for another year after the cash-strapped nation was unable to make the scheduled payment, Pakistan's central bank confirmed on Thursday.
The deposit, which was due to mature on December 5, 2024, had originally been placed by Saudi Arabia for one year in 2021, with subsequent rollovers in 2022 and 2023, following royal directives that reflected the close bilateral relationship between the two nations.
This extension marks the first in a series of debt rollovers Pakistan will require to avoid default, with repayments of up to USD 13 billion due to Saudi Arabia, China, and the UAE by June next year.
The State Bank of Pakistan (SBP) announced that the Saudi Fund for Development (SFD) extended the deposit for another year. The rollover comes amid Pakistan's ongoing debt crisis, with the government and the International Monetary Fund (IMF) working to secure more extensions and avoid a sovereign default.
In addition to the USD 3 billion, Pakistan faces another USD 2 billion Saudi cash deposit maturing by mid-June 2025, which is also expected to be rolled over. Despite promises from both former Prime Minister Imran Khan and current Prime Minister Shehbaz Sharif to repay debts on time, Pakistan has relied heavily on debt rollovers from China, Saudi Arabia, and the UAE to avoid default, while paying back debts to institutions like the World Bank and IMF as scheduled.
Pakistan owes around 45% of its total external public debt to bilateral creditors, with China being the largest lender. The remaining 45% is owed to multilateral creditors, with the World Bank being the largest at USD 20 billion as of 2023.
The government's strategy to secure debt rollovers instead of restructuring has added to Pakistan's mounting debt problems, increasing the overall debt stock and interest payments. According to the World Bank, Pakistan made the second-largest interest payments in the region in 2023.
The SBP highlighted that the extension of the Saudi deposit would help strengthen Pakistan’s foreign exchange reserves and contribute to the country’s economic growth and development. However, in the next six months, Pakistan will need to make at least USD 13 billion in repayments to its three largest bilateral creditors.
In addition to its debt rollover agreements, Pakistan must repay around USD 8 billion to China, including USD 2 billion due in March 2025. The country also has to pay commercial loans to China, including USD 500 million in March and April, and USD 2.4 billion in June.
The IMF has been critical of Pakistan’s debt management strategy, particularly its reliance on rolling over debt to avoid restructuring.
With external debt now approaching USD 131 billion, Pakistan’s total external debt servicing accounted for 43% of its exports in 2023, a concerning indicator of the country's fiscal health. As a result, the SBP has been forced to buy US dollars from the market, artificially inflating the exchange rate to stabilise the rupee.
Pakistan has also requested China to reschedule an additional USD 3.4 billion worth of official and guaranteed debt, which is due during the IMF programme period.
This rescheduling is seen as crucial for bridging the country's external financing gap, which the IMF pegged at USD 5 billion when Pakistan signed the bailout package in September.
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