Saudi Arabia Pledges $1 Billion Oil Financing Facility to Pakistan
In a move that underscores the strengthening economic ties between Saudi Arabia and Pakistan, Riyadh has pledged to extend a $1 billion oil financing facility to Pakistan for the 2025–26 fiscal year. Finance ministry officials in Islamabad said the commitment will help Pakistan meet its energy import needs and ease pressure on its foreign exchange reserves, which have long faced headwinds from persistent current-account and fiscal deficits.
The oil facility, which translates to roughly $100 million in oil supplies each month, is expected to bolster Pakistan’s energy security while preserving precious foreign exchange liquidity. Officials noted that the facility’s availability is particularly timely as Pakistan navigates a challenging macroeconomic environment, including elevated import costs and debt service obligations.
Saudi Deposits Rolled Over to Support the External Account
Alongside the oil facility, Saudi Arabia has agreed to roll over $5 billion in time deposits held with the State Bank of Pakistan (SBP). The deposits carry a 4% annual interest rate and have been renewed annually to bolster Pakistan’s external account. Of the total, $2 billion is due in December and $3 billion in June 2026, according to officials familiar with the arrangement.
At current exchange rates and with Saudi renewals in place, the rolled-over deposits form a crucial component of Pakistan’s budgetary support. The government has long argued that such financial assurances help ease volatility in reserve levels and reassure international markets as it pursues stabilization and growth policies.
Significance for Pakistan’s Economy
During the first quarter of the current financial year, Pakistan drew on the Saudi facility for oil purchases totaling over Rs85 billion (about $300 million). The arrangement roughly equates to $100 million in monthly oil supply, translating to about Rs28.37 billion in local currency each month. Analysts say the facility is a practical instrument to bridge short-term energy needs with longer-term macroeconomic stabilization efforts.
Beyond immediate liquidity, the Saudi commitments reinforce Riyadh’s role as a steady partner for Pakistan’s economic strategy. The Kingdom’s ongoing support arrives at a time when Pakistan is pursuing broader economic and defense collaborations, with both nations emphasizing stability and resilience amid regional uncertainties.
Diplomatic Context: From a Strategic Pact to Economic Cooperation
Pakistan and Saudi Arabia recently deepened their strategic relationship, signing a landmark Strategic Mutual Defence Agreement that declares mutual defense commitments in the event of aggression against either party. The pact, announced during Prime Minister Shehbaz Sharif’s visit to Riyadh, complements a broader economic framework that the two countries are developing under the Pakistan–Saudi Arabia Economic Framework.
As part of this framework, an 18-member high-level committee has been formed to oversee negotiations aimed at expanding cooperation beyond defense and energy to include environmental protection and climate stability. The committee’s remit reflects Pakistan’s aim to diversify its partnership with Saudi Arabia while ensuring that economic and security ties remain robust in a complex regional landscape.
What Comes Next?
With Prime Minister Shehbaz Sharif in Riyadh for a three-day visit and participation in the Future Investment Initiative, observers will be watching for further announcements on trade, investment, and project-based cooperation. The combined impact of the oil facility, the rolled-over deposits, and a deepening strategic partnership could influence Pakistan’s external accounts and investment climate over the coming year.
In summary, Saudi Arabia’s renewed financial support — through the $1 billion oil facility and the rollover of $5 billion in deposits — signals a strong, multi-faceted commitment to Pakistan’s economic stability and growth ambitions.
