On his visit to Pakistan in 2019, Saudi Crown Prince Mohammed bin Salman signed memoranda of understanding (MoUs) for a total investment of US$21 billion, including $12 billion to be utilized for a deep conversion refinery and petrochemical complex.
The prospect of such a substantial investment brought hope and excitement to millions of Pakistanis, who anticipated the economic benefits it could bring to their country. However, to their disappointment, this much-anticipated venture never saw the light of day. Instead, it remained yet another failed undertaking, marred by diplomatic slip-ups and strained foreign relations.
Also read: Pakistan’s tumultuous relationship with the IMF
The turning point in Pakistan’s relationship with Saudi Arabia can be traced back to late 2020 when Islamabad accused the Organization of Islamic Cooperation (OIC), the Saudi Arabia-led bloc of 57 Muslim-majority countries, of not intervening in the Kashmir issue – an issue of great importance and sensitivity for former Pakistani prime minister Imran Khan.
This accusation and the subsequent friction called into question Saudi Arabia’s hegemony over the Muslim world, leading to a souring of its otherwise cordial relations with Pakistan.
In response to this perceived threat, Saudi Arabia took significant actions that further strained the relationship.
The first blow came in the form of the retraction of an interest-free loan of $1 billion that Saudi Arabia had extended to Pakistan in November 2018. This withdrawal worsened Pakistan’s already declining foreign-exchange reserves, pushing the country to the brink of sovereign default.
Additionally, Saudi Arabia withdrew the deferred-oil-payments scheme, which was intended to help Pakistan manage its import costs.
These actions had a severe impact on Pakistan’s economic stability and put the country in a precarious position.
Historic links
However, despite these recent challenges, Pakistan and Saudi Arabia have a long history of unwavering resilience in their relationship. Rooted in shared religious beliefs and cultural affinities, the two nations have enjoyed a long-standing alliance and maintained exceptionally close ties.
Pakistan has consistently relied on Saudi Arabia during challenging economic periods, especially for crucial oil supplies and financial support. The friendship between the two countries has endured through numerous highs and lows, proving its enduring nature.
Given Pakistan’s recurrent challenges of dwindling foreign-exchange reserves, volatile exchange rates, and escalating inflation, the reported investment plans of the Saudi kingdom amounting to $11 billion, along with the increase of its loan deposit to the State Bank of Pakistan from $3 billion to $5 billion, could serve as a potential lifeline for Pakistan’s struggling economy.
These measures might prevent Pakistan from falling under the scrutiny of the International Monetary Fund (IMF), which would otherwise necessitate further increases in electricity and gasoline prices and additional tax burdens.
Saudi Arabia has not only provided economic support to Pakistan but has also been a generous benefactor during humanitarian crises. The country has disbursed deposits of $200 million each in favor of Pakistan’s central bank and for the purchase of urea fertilizers.
Moreover, Saudi Arabia has contributed 13.3% of the global funds pledged to Pakistan for stress relief from floods. The aid extended is not limited to monetary terms but also includes cargo airlifts and trucks, as well as search-and-rescue supplies.
This unique and profound relationship predates Pakistan’s independence, with generous donations received from Saudi Arabia in 1943 when the Bengal famine struck. Additionally, the two countries formed an anti-communist front during the Cold War and stood against the Soviet occupation of Afghanistan, cementing their bond further.
Valued alliance
Contrary to common perception, Saudi Arabia’s relationship with Pakistan goes beyond religious ideologies. It views Pakistan as a reliable ally and an indispensable defense partner, particularly due to Pakistan’s possession of a nuclear arsenal that serves as a deterrent against threats in the Persian Gulf region.
Additionally, Pakistan plays a crucial role in meeting Saudi Arabia’s labor demands, providing a steady supply of inexpensive workers for the country’s ambitious infrastructure projects. Furthermore, Pakistan represents a significant international market for Saudi Arabia’s oil and offers attractive opportunities for foreign investment.
The manner in which Pakistan responds and upholds its end of this mutually beneficial relationship remains uncertain. The country heavily relies on Saudi Arabia for the inflow of remittances, with a significant sum contributed by a large expatriate community of 2.5 million individuals.
Moreover, Saudi Arabia plays a critical role in meeting almost a quarter of Pakistan’s oil import requirements, a contribution that has been vital for the Pakistani economy. The provision of oil at subsidized rates has played a critical role in sustaining Pakistan’s economic stability over the years.
However, the persistent display of hostility by Pakistan in international forums poses a significant risk to the strong bond that has been established between the two nations over the past 75 years.
| Year | Export (US$ Million) | Import (US$ Million) | Total Trade Volume (US$ Million) | Pakistan’s Total Trade Deficit (US$ Million) |
| 2003 | 469.6 | 1416.7 | 1886.2 | 947.1 |
| 2004 | 353.1 | 1757.8 | 2111 | 1404.7 |
| 2005 | 354.9 | 2650.6 | 3005.5 | 2295.7 |
| 2006 | 309 | 3033.2 | 3342.3 | 2724.2 |
| 2007 | 295.5 | 4011.8 | 4307.3 | 3716.3 |
| 2008 | 441.1 | 5954.9 | 6396 | 5513.9 |
| 2009 | 425.7 | 3500.1 | 3925.8 | 3074.4 |
| 2010 | 409 | 3837.9 | 4247 | 3428.9 |
| 2011 | 420.2 | 4668.3 | 5088.5 | 4248.1 |
| 2012 | 455.6 | 4283.5 | 4739.2 | 3827.9 |
| 2013 | 494.1 | 3847.2 | 4341.3 | 3353.2 |
| 2014 | 509.7 | 4417.4 | 4927.1 | 3907.7 |
| 2015 | 431.3 | 3006.8 | 3438.1 | 2575.4 |
| 2016 | 380.4 | 1843.1 | 2223.6 | 1462.7 |
| 2017 | 334.5 | 2730.4 | 3064.9 | 2395.9 |
| 2018 | 316.3 | 3242.3 | 3558.7 | 2926 |
| 2019 | 404.9 | 2436.3 | 2841.2 | 2031.4 |
| 2020 | 432.3 | 1893.1 | 2325.4 | 1460.8 |
The relationship between Pakistan and Saudi Arabia is at a critical juncture. While historical ties and shared interests continue to bind the two countries together, recent developments have tested the strength of their alliance. Pakistan’s economic challenges and geopolitical dynamics add complexity to the equation.
How Pakistan navigates these challenges and demonstrates its commitment to the alliance will determine the future trajectory of this significant partnership.
A more detailed article by this author can be found here: Debt ad Infinitum: Pakistan’s Macroeconomic Catastrophe.