Cash-strapped Pakistan faces yet another financial setback as it must repay Saudi Arabia USD 3 billion within a year, with an additional four per cent interest per quarter. Finance Minister Shaukat Tarin informed the Senate on Friday, 11 February, deepening the already precarious state of Pakistan’s economy.
In October 2021, Saudi Arabia had agreed to revive its financial support to Pakistan, comprising USD 3 billion in safe deposits and between USD 1.2–1.5 billion worth of oil supplies on deferred payment. The package was seen as crucial for Islamabad to convince the International Monetary Fund (IMF) of its financing plan. However, IMF representatives last week demanded Pakistan “do more” on economic reforms, insisting that tax hikes alone would not suffice.
These tax increases have proved deeply unpopular among Pakistanis, fuelling public discontent. Pakistan continues to have the lowest tax-to-GDP ratio in South Asia, exposing the chronic weaknesses of its revenue system.
Tarin, in his Senate address, revealed further details of the Saudi loan arrangement. The entire loan must be repaid in one instalment, with no possibility of deferred payment. He defended the terms: “Interest rates are rising across the world. The interest rate for the Saudi loan being four per cent is not something bad,” he argued.
The Saudi demand underscores the deterioration in bilateral ties that began over two years ago. Despite repeated official statements praising Saudi Arabia as an “indispensable partner”—most recently during the visit of the Saudi Interior Minister to Islamabad last week—relations remain strained.
Even the high-profile visit of Crown Prince Mohammed bin Salman in 2019, when he was accorded a red-carpet welcome, failed to repair the damage. The rift began when Pakistan’s Foreign Minister, Shah Mahmood Qureshi, publicly demanded Riyadh convene a special OIC session on Kashmir, pointedly criticising Saudi Arabia and other Gulf states for their “silence” owing to growing economic ties with India.
This blunt stance angered both Saudi Arabia and the UAE, leading them to demand early repayment of long-term loans and withdraw concessional fuel sales on deferred payment. Further, Pakistan’s increasing alignment with Turkey—seen as a rival power in intra-Islamic geopolitics—has only deepened Gulf mistrust.
Adding to the strain, Prime Minister Imran Khan and his ministers have repeatedly accused Gulf nations of “diluting” the Islamic world’s position on Kashmir to pursue lucrative economic partnerships with India. Such rhetoric has backfired, leaving Pakistan diplomatically isolated and financially vulnerable.
Ultimately, Riyadh’s insistence on strict repayment terms highlights not only Pakistan’s deepening economic crisis but also the erosion of trust with once-reliable Gulf partners. In a region where alliances are often transactional, Islamabad is learning the costs of miscalculated diplomacy.