- Strategic investments and aid from Saudi Arabia reshape Pakistan’s economic landscape and address trade challenge
The Pakistan-Saudi Arabia relationship has long been considered a strong and strategic partnership, often called “brotherly” ties. This alliance has endured several key conflicts and is built on security, religious, and financial foundations. Saudi Arabia has provided significant financial aid to Pakistan, helping the country survive financial defaults and governance issues. Pakistan and Saudi Arabia have a significant trade relationship, with Saudi Arabia being Pakistan’s largest trading partner in the Middle East. Bilateral trade between the two countries stood at $3.6 billion in 2020-21, with Pakistan exporting goods worth $267 million, primarily textiles, food, and machinery, and importing Saudi goods valued at $3.33 billion, mainly petroleum products, chemicals, and fertilisers.
Saudi Arabia is also one of Pakistan’s largest suppliers of crude oil, meeting around 30% of Pakistan’s oil needs. Key initiatives to boost trade include the proposed Saudi-Pakistan Oil Refinery, estimated to cost $10 billion, and Saudi investments in Pakistan’s agriculture, energy, and infrastructure sectors under the China-Pakistan Economic Corridor (CPEC). Furthermore, the signing of the Pak-Saudi Trade Agreement in 2019 aims to enhance cooperation in trade, investment, and economic development, with plans to increase bilateral trade to $6 billion by 2025.
As we all aware of the fact that, Pakistan’s trade deficit crisis has exacerbated the country’s economic woes, with the deficit ballooning to $37.7 billion in 2020-21. The widening gap between exports ($25.3 billion) and imports ($62.9 billion) is primarily attributed to stagnant exports, rising import bills due to increased energy and food prices, and a depreciating rupee. This has resulted in a current account deficit of 4.6% of GDP, putting immense pressure on Pakistan’s foreign exchange reserves, which stood at $10.3 billion in August 2022. The crisis has also led to a decline in the value of the Pakistani rupee, inflationary pressures, and a slowdown in economic growth. To address this, Pakistan is struggling hard to diversify its export base, boost domestic industries, and implement structural reforms to improve trade competitiveness where, state finds the IMF’s $6 billion bailout package and Saudi Arabia’s $4.2 billion financial assistance programme to be the blessing in disguise for temporary relief.
Pakistan’s trade deficit has been a pressing concern for the country’s economy. The trade deficit for the fiscal year 2021-22 was estimated at $48.355 billion, primarily due to growing import bills for fuels and food. This deficit is largely attributed to the country’s reliance on imported energy products, machinery, equipment, and chemicals in which Saudi Arabia has played a significant role in helping Pakistan to manage its trade deficit.
In 2018, Saudi Crown Prince Mohammad bin Salman pledged a $6 billion aid package to Pakistan, which included $3 billion in balance of payment support and $3 billion in deferred payment for oil imports. This financial assistance has helped Pakistan stabilize its economy and reduce its trade deficit.
Additionally, Saudi Arabia has invested in various sectors in Pakistan, including energy, infrastructure, and agriculture, which has helped create jobs and stimulate economic growth. The trade relationship between Pakistan and Saudi Arabia is crucial for Pakistan’s economic survival. Saudi Arabia is one of Pakistan’s largest trading partners, with Pakistan exporting goods such as textiles, food, and machinery to the Kingdom. In return, Saudi Arabia provides Pakistan with oil and petroleum products, which are essential for Pakistan’s economy.
To further expand trade relations, Pakistan’s trade missions in Saudi Arabia should play an active role in sharing business opportunities information and disseminating calendars of exhibitions and forums to concerned parties. By strengthening its trade relationship with Saudi Arabia, Pakistan can attract continued financial assistance and investment, ultimately helping to reduce its trade deficit and stabilize its economy.
Pakistan’s trade deficit is also attributed to its limited export base, relying heavily on textiles, cotton, and leather goods. The country’s export sector has struggled to diversify and compete with other emerging economies. To address this, Pakistan has sought to enhance its trade ties with Saudi Arabia, exploring opportunities in non-traditional sectors such as information technology, pharmaceuticals, and renewable energy. Saudi Arabia’s Vision 2030, which aims to diversify its own economy, presents opportunities for Pakistan to export goods and services. Saudi Arabia’s investment in Pakistan’s energy sector has helped reduce the country’s reliance on imported fuels. The Kingdom’s state-owned oil company, Aramco, has partnered with Pakistan’s Parco to develop a $10 billion oil refinery in Gwadar. This project will not only reduce Pakistan’s oil import bill but also generate employment opportunities and stimulate economic growth in the region. Furthermore, Saudi Arabia’s investment in Pakistan’s renewable energy sector, particularly solar power, will help reduce the country’s dependence on fossil fuels. To further leverage Saudi Arabia’s economic support, Pakistan has sought to strengthen bilateral ties through strategic agreements. The two countries have signed several Memoranda of Understanding (MoUs) aimed at enhancing trade, investment, and economic cooperation. These agreements focus on areas such as trade facilitation, customs cooperation, and investment promotion. Additionally, Pakistan has sought to expand its workforce export to Saudi Arabia, with thousands of Pakistani workers employed in the Kingdom’s construction, healthcare, and education sectors. Remittances from these workers contribute significantly to Pakistan’s foreign exchange reserves, helping to offset the trade deficit.
Saudi Arabia has extended crucial support to Pakistan to tackle its trade deficit and economic crisis. In 2018, Saudi Crown Prince Mohammad bin Salman pledged a $6 billion aid package to Pakistan, comprising $3 billion in balance of payment support and $3 billion in deferred payment for oil imports. This financial assistance helped Pakistan stabilize its economy, reduce its trade deficit, and bolster its foreign exchange reserves.
Additionally, Saudi Arabia has invested in various sectors in Pakistan, including energy, infrastructure, and agriculture, creating jobs and stimulating economic growth. The Kingdom has also provided relief on oil payments, allowing Pakistan to defer oil import payments, thereby easing pressure on its foreign exchange reserves. Saudi Arabia’s support extends beyond financial aid. The Kingdom has also facilitated Pakistan’s access to international markets, promoting Pakistani exports and encouraging Saudi investors to explore opportunities in Pakistan.
The Saudi-Pakistan Business Council has been established to enhance trade and investment cooperation between the two countries. Furthermore, Saudi Arabia has offered technical assistance and capacity-building programs to help Pakistan improve its economic governance, tax revenue collection, and public financial management. The Kingdom has also encouraged Pakistani workers to seek employment in Saudi Arabia, with remittances from these workers contributing significantly to Pakistan’s foreign exchange reserves. Through these measures, Saudi Arabia has demonstrated its commitment to supporting Pakistan’s economic stability and growth, reinforcing the strong bilateral ties between the two nations.
Policies to strengthen the relationship between Pakistan and Saudi Arabia
It is crucial for the economic and strategic interests of both nations to develop economic cooperation in order to foster investments in key sectors such as energy, infrastructure, and agriculture. For instance, Saudi Arabia’s $10 billion investment in an oil refinery in Gwadar, Pakistan, can create jobs and stimulate economic growth.
Additionally, trade facilitation measures can enhance bilateral trade, which currently stands at $3.6 billion annually. Security cooperation is another vital aspect of the relationship. Pakistan and Saudi Arabia have a long history of military collaboration, with Pakistan providing training and troops to Saudi Arabia.
The Islamic Military Counter Terrorism Coalition (IMCTC), led by Pakistan’s former Army Chief General Raheel Sharif, is a significant initiative in this regard. To further solidify ties, cultural exchange programmes can promote people-to-people connections, while diplomatic engagement can help resolve conflicts and address mutual concerns. Regular high-level visits, can also foster environment to enhance trust and cooperation between the nations that deepen their strategic partnership and advance their shared interests.
The Author is MD IRP/ Faculty Department of H&SS, Bahria University Karachi