To peak Saudi Arabia’s economic interest, Pakistan should change track
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Pakistan and Saudi Arabia have remained erstwhile allies and strategic partners since the Cold War years. The political outlook of both states and mutual interests in the region further strengthened the bilateral partnership over time. Saudi Arabia has provided economic support to Pakistan at critical junctures while Pakistan has remained a key partner to the Kingdom in the security realm and has always reiterated its commitment toward Saudi Arabia’s national security. As Pakistan is again in the throes of an economic crisis, the maiden visit of Pakistani Prime Minister Shahbaz Sharif to Saudi Arabia and his engagement with Saudi decision-makers remains of paramount importance.
In the last three decades, Pakistan’s economic condition has deteriorated. This decline has resulted in an even greater dependence upon financial support from Gulf States, in particular, Saudi Arabia. The Saudi Kingdom has given billions of dollars to Pakistan’s central bank since the late 1990s to help stabilize the country’s depleting foreign reserves and to avert a balance of payments crisis.
The Kingdom also remains home to more than two million Pakistani expats whose foreign remittances constitute more than one-fifth of the country’s total remittances annually. In the last two fiscal years, Pakistani expats in Saudi Arabia have contributed more than $10 billion in remittances and the trajectory for the current fiscal year depicts the repetition of this trend. This shows the critical importance of remittances sent by Pakistani expats in Saudi Arabia for the country’s economic stability and its foreign reserves.
In the past two years, Saudi Arabia’s financial support has also become critical for Pakistan’s engagement with the International Monetary Fund (IMF). In 2023, the country secured a $3 billion bailout package from the IMF only after Saudi Arabia committed to the IMF a pledge of $2 billion in terms of financial support for Pakistan.
The visits to Pakistan by officials of the Saudi Ministry of Industry and Mining Resources are promising. There is a clear intent on the Saudi part to position itself as a key player in Pakistan’s mining sector.
Umer Karim
On the investment side, initially the prospects seemed even brighter, especially during the 2019 visit of the Saudi Crown Prince to Pakistan. The crown jewel of these investment initiatives was to be the development of an oil refinery in the city of Gwadar, the hub of the China Pakistan Economic Corridor (CPEC). Its modalities have been revised after a hiatus of four years and a Memorandum of Understanding (MOU) was signed between Saudi Aramco and Pakistani state-owned companies at the end of July 2023. This MOU entails a provision of 30 percent equity from Aramco, reducing the scale of its investment.
Saudi Arabia has also expressed its interest in joining the Reko diq Copper and Gold Mining Project and to acquire the 25 percent stake currently held by the Pakistani government. The main Saudi entity involved was the Public Investment Fund (PIF). PIF has over time become a principal Saudi investment arm and has bought stakes in diverse sectors. The PIF interests in these mining ventures and the creation of Manara, a joint venture with the Saudi Arabian Mining Company (Maaden) shows its relevance for several industries critically linked to the goals of Saudi Vision 2030. Saudi Arabia aims to become a key player in the mineral trade and to integrate itself in the global supply chain of this commodity. In this backdrop, the visits to Pakistan by officials of the Saudi Ministry of Industry and Mining Resources are promising. There is a clear intent on the Saudi part to position itself as a key player in Pakistan’s mining sector.
This interest within Pakistan’s energy and mineral sectors however, is somewhat dampened by an atmosphere of political instability and bureaucratic red-tapism. The creation of the Special Investment Facilitation Council (SIFC) was to address these problems, but it is still a work in progress.
Ideally during the recent trip of the Prime Minister and his engagement with Saudi officials, perhaps he should have been accompanied by members of his cabinet in charge of investment and privatization, planning and development and petroleum portfolios in addition to the ministers of finance and economic affairs. This could have helped fast-track Saudi engagement within the above mentioned two projects.
Ultimately, unless the issue of political uncertainty and instability in the country is resolved, it will continue to cloud the country’s economic fortunes and dampen its investment potential-- a problem no amount of special bodies will be able to resolve.
- Umar Karim is a doctoral researcher at the University of Birmingham. His research focuses on the evolution of Saudi Arabia’s strategic outlook, the Saudi-Iran tussle, conflict in Syria, and the geopolitics of Turkey, Iran and Pakistan. Twitter: @UmarKarim89
