Saudi Arabia rolls over $3 billion financing to Pakistan as $10 billion US backstop fades

Saudi Arabia has rolled over its $3 billion financing facility to Pakistan for a longer period, Finance Minister Muhammad Aurangzeb said on Wednesday, providing relief to Islamabad as it faces external debt repayment pressures.

The financing was originally provided in April to help Pakistan repay $3.5 billion owed to the United Arab Emirates (UAE). It matured on October 31 under its three-month term.

"It has been extended and for a reasonable period. You don't need to worry as to for how long given the kind of strategic relationship we have," Aurangzeb told reporters in Islamabad, Dawn reported.

The rollover comes as prospects of a proposed $10 billion US backstop facility appear to have weakened. Riyadh had earlier extended a separate $5 billion financing facility to Pakistan until 2028.

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Pakistan looks to reduce external debt

Aurangzeb also told the Senate Standing Committee on Finance that the government was targeting a $4 billion reduction in external debt during the current fiscal year, followed by another $3.5 billion next year. This compares with a $4.5 billion reduction in the previous fiscal year.

He said Pakistan was looking to replace expensive short-term borrowing with longer-term financing through bonds and private placements to reduce refinancing risks.

The minister said the country's external debt had been rising by $5 billion to $6 billion annually, increasing from $45 billion in 2014-15 to around $100 billion. However, the annual increase had slowed to about $1 billion over the past two years.

Pakistan's liquid foreign exchange reserves stand at approximately $26.86 billion. Of this, the State Bank of Pakistan holds $21.47 billion, while commercial banks account for around $5.41 billion.

The rollover follows Pakistan's repayment of $3.5 billion to the UAE in April after Abu Dhabi sought immediate repayment. The move had put pressure on Pakistan's foreign exchange reserves, prompting Islamabad to seek financial support from Riyadh.