• Considers increasing deposit in SBP to $5bn
• Analysts fear move may not help Islamabad meet immediate needs

KARACHI: Saudi Arabia said it could increase its investments in Pakistan’s economy to $10 billion, the Saudi state news agency reported on Tuesday, as well as increase the ceiling on deposits into the State Bank of Pakistan (SBP) by $2bn, to $5bn.

Crown Prince Mohammed bin Salman has directed a study to increase Saudi Arabian investments to $10bn from the previous $1bn announced in August, the news agency reported, citing a statement from the crown prince.

He has also asked the Saudi Development Fund (SDF) — which provides soft loans and grants to developing countries as a means to bolster allies and cement new relationships — to consider raising the ceiling for Saudi deposits into the SBP as part of measures to support the struggling economy. Last month, the Saudis extended the terms of an existing $3bn deposit in the SBP it made in 2021.

Tuesday’s statement comes a day after the crown prince met with Army Chief Gen Syed Asim Munir to review ways to enhance bilateral ties and strengthen cooperation.

And on Monday, international donors committed over $9bn — including $1bn from Saudi Arabia — to help Pakistan recover from devastating floods last year, exceeding its external financing goals, at a Geneva meeting co-hosted by the United Nations and Islamabad.

Analysts said Saudi Arabia’s intention to boost investments could be a good opportunity but insisted that Pakistan needed immediate dollar inflows to prop up foreign exchange reserves and reduce default risk.

“Saudis’ intention to invest $10bn could be used as a good opportunity to provide investment options in Pakistan, said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

“For the long term, it would be best to invite the Saudis for investment in a new refinery. This is good for the country, while Saudis would find it easy to invest,” he said.

He said privatising companies could be another option to get Saudi investments that could make some high-value entities viable with this investment instead of posting deficits for years.

However, he said the intention to increase the amount of another $2bn in the SBP’s account would help the country with its immediate needs to keep meeting the necessary foreign payment obligations.

SBP-held reserves have dropped to $5.6bn — the lowest in almost nine years and enough to cover less than one month of imports. The deteriorating economic outlook triggered downgrades, forcing authorities to announce austerity measures to reduce energy bills and save dollars.

Bankers and analysts Dawn spoke to also suggested that the Saudi investments could be invited for the agricultural sector since it had a vast opportunity to explore and develop with the latest mechanisation for higher yields.

Pakistan’s major crop yields are much below those in developed countries. Except for rice, all major crops like wheat, pulses and cotton are much below the potential. As a result, Pakistan has to import these agricultural products to meet its needs.

Talking about the $10bn investment by Saudi Arabia, the CEO of brokerage house Topline Securities, Mohammad Sohail, said that said all depended on the timing of the investment, as Pakistan needed dollar inflows immediately to reduce the debt repayment risk and tame the growing uncertainty.

The situation is critical for the economy, as it requires huge inflows to avoid the risk of default. On Monday, associations representing the value-added textile sector lamented the ongoing economic crisis and feared that more industries would halt their operations, leading to the lay-off of seven million workers, including four million in the textile sector alone.

Tahir Abbas, the head of research at Arif Habib Ltd, said the $10bn investment would be in the refinery sector as the kingdom was planning to set up a deep conversion refinery in Pakistan, as announced back in 2019.

“The initiation of the said project would bring much-needed foreign direct investment in the country,” he said, adding that the government should finalise the modalities of the project, including the much-awaited refinery policy to speed up the work and prerequisites of the project.

Published in Dawn, January 11th, 2023