File photo of a meeting of Pakistan’s federal cabinet. Courtesy PID
Both agreements—a $3 billion cash deposit with 4% interest and $1.2 billion deferred oil payment facility with 3.8% interest—must be returned in a year
The federal cabinet on Saturday approved through a summary two loan agreements between Pakistan and Saudi Arabia, agreeing to pay 4% interest on a $3 billion cash deposit that will have to be returned within a year at the risk of massive penalties on any default.
Additionally, the cabinet approved 3.8% interest on a $1.2 billion deferred payment facility for oil. Neither loan has any option for a rollover—contrary to similar previous agreements—with both needing to be returned after a year.
Last month, Prime Minister Imran Khan visited Saudi Arabia and secured the financial assistance to Pakistan with an intent to stabilize the rupee-dollar parity by reducing the pressure on the State Bank of Pakistan’s foreign exchange reserves from a large imports bill.
Based on the deal approved, Pakistan would have to pay $120 million in interest on the cash deposit. It would also have to pay 3.8% interest on the $100 million/month deferred oil facility. Both agreements would end in exactly a year after the date of deposit, with Saudi Arabia retaining the right to demand its immediate return within 72 hours upon a written request at any earlier point.
According to a report published in daily Express Tribune, the Gulf kingdom has also retained the right to demand the immediate return of the funds in case of a “sovereign default”, which has been defined as any delay in timely payment of the interest; failure by Pakistan to comply with any provision of the cash deposit agreement; failure to service the public external debt of over $100 million; and the early conclusion of the International Monetary Fund bailout program.
The most worrying provision of the agreement, say observers, refers to Pakistan agreeing to surrender its sovereign claim of immunity from suit, execution, attachment or other legal processes in relation to the $3 billion cash deposit agreement, virtually allowing the Gulf kingdom to claim any of the state’s assets in exchange for funds owed. Authorities told Tribune that this clause was necessary due to the external vulnerabilities facing Pakistan.