Saudi Arabia’s development fund on Thursday inked a $1 billion deal with Pakistan to fund its oil derivative sector as Islamabad faces a tough economic situation.
THE AGREEMENT
The Saudi Fund for Development (SFD) announced that the agreement is a “continuation of the support” provided by Saudi Arabia to Pakistan in light of its economic woes. The statement mentioned that the SFD would continue to support Pakistan’s efforts to reach a sustainable economy.
The agreement aims to support the economy of #Pakistan, enhance sector growth, navigate economic challenges, and build a sustainable economy. It comes as a continuation of the support provided previously in 2019 by Saudi to finance oil derivatives with a total of USD 4.4 billion
— الصندوق السعودي للتنمية (@SaudiFund_Dev) January 12, 2023
It noted that the latest deal is an extension of the support Riyadh has provided Islamabad to finance its oil derivatives for $4.4 billion from 2019 to 2021. Apart from funding Pakistan’s oil derivatives, the SFD has financed over 40 development projects in Pakistan worth $1.4 billion.
Pakistani Economic Affairs Secretary Kazim Niaz, present at the signing ceremony in Islamabad, said this initiative will help his country “build a prosperous future.”
OIL DERIVATIVES
Oil derivatives are financial instruments that use energy products like oil, natural gas, and electricity as underlying assets and are traded via formal exchanges. They have become a common tool in the energy market to set pre-determined prices for products and hedge against price fluctuations.
PAKISTAN’S ECONOMIC CRISIS
Pakistan is facing one of its worst economic crises in its history, with foreign dwindling foreign exchange reserves and rapid currency depreciation. Last month, the country’s central bank said its foreign exchange reserves fell to $6.7, the lowest in almost four years. The last time forex reserves fell below 7% was in 2019.
The country has also been affected by an electricity crisis. Recent floods have destroyed power stations and resulted in widespread power outages across the country.
SAUDI ARABIA’S ASSISTANCE
Recently, Saudi Arabia has offered assistance to help Pakistan deal with its economic woes and flood-related damages. Earlier this week, Saudi Crown Prince called on officials to invest more in Pakistan. Reports suggest that Riyadh could provide Pakistan with $11 billion in financial assistance.
Moreover, the kingdom plans to renew its $3 billion deposit with the State Bank of Pakistan. Additionally, the Gulf country provided $1 billion in humanitarian aid to Islamabad to help with flood recovery.