Naveed Cheema
Pakistan has quietly approached Saudi Arabia with a set of ambitious financial requests that, if granted, could meaningfully reshape the country’s external debt profile and its standing in international capital markets. According to reports in a section of the media, Islamabad has asked Riyadh to extend the existing five billion dollar rollover from an annual arrangement to a ten-year commitment, and to expand the current oil facility from 1.2 billion dollars to five billion dollars. The scale of these requests reflects both the depth of Pakistan’s financial needs and the growing uncertainty surrounding the regional environment in which those needs must be met.
The backdrop to these negotiations is the IMF’s thirty-six-month Extended Fund Facility of seven billion dollars, under which Pakistan is currently operating. When the programme was originally structured, the Fund had asked Pakistani authorities to secure rollovers from three friendly countries — Saudi Arabia, China, and the United Arab Emirates — for the full duration of the programme, with the sixth and final review scheduled for September 2027. That was the ideal arrangement: longer-term commitments that would provide stability and reduce the risk of annual uncertainty undermining programme credibility.
The three countries, however, had other ideas. All three insisted on annual renewals, offering assurances to Fund staff that rollovers would be treated as routine provided Pakistan remained on track with programme conditions and continued implementing the agreed structural reforms. That was a reasonable enough assurance in calmer times, but the Middle East is no longer calm, and the annual renewal model now carries risks it did not carry before. Pakistan’s total foreign exchange reserves stood at around 16.3 billion dollars as of late February 2026, with over twelve billion dollars of that figure consisting of rollovers from these three friendly countries. The dependence is not incidental. It is structural.
This is precisely why Pakistan’s request for a ten-year extension of the Saudi rollover makes strategic sense on paper. Replacing short-term annual commitments with a decade-long arrangement would reduce rollover risk, provide planning certainty, and theoretically lower the applicable interest rate, since longer-term sovereign lending from a friendly bilateral partner typically carries more favourable pricing than repeated short-term instruments. That said, deferring repayment by nine additional years is not without cost. It adds to the country’s total external indebtedness, and the real burden of that additional debt will depend heavily on whether Pakistan’s trade deficit continues to widen and whether the rupee continues its long-running depreciation against the dollar. Both trends have been persistently unfavourable. When the exchange rate weakens, the rupee cost of servicing dollar-denominated debt rises automatically, regardless of the underlying interest rate. It is worth recalling that in last year’s revised budget estimates, debt servicing consumed 52 percent of total government expenditure. That figure alone should concentrate the minds of those negotiating new borrowing arrangements.
The second request — expanding the oil facility from 1.2 billion to five billion dollars — is a direct response to the sharp rise in global energy prices triggered by the Iran conflict. Petroleum prices climbed from the mid-sixties to around a hundred dollars per barrel within nine days of hostilities escalating, a pace of increase that leaves little room for adjustment. Pakistan is not insulated from these shocks, and given the structure of its energy import bill, the impact on its fragile economy is proportionally greater than on most middle-income countries. A larger deferred oil payment facility would provide temporary breathing room, but it must not be confused with a solution. It delays the payment obligation; it does not eliminate it.
The third request involves the securitisation of remittances. In simple terms, Pakistan has asked Saudi Arabia to help it use anticipated future remittance inflows as collateral against which bonds could be issued, enabling access to international capital markets at lower interest rates. The logic is not unreasonable. Remittances are among Pakistan’s most reliable external inflows, and using them to back market instruments is a recognised financing technique in emerging markets. Additionally, Pakistan has reportedly sought a Saudi guarantee for the issuance of sukuk or other bonds, which would further reduce borrowing costs by attaching Riyadh’s stronger credit standing to Pakistani paper.
The concern here is one of application rather than structure. Previous administrations issued sukuk and Eurobonds not to finance infrastructure or productive investment, but to plug current expenditure gaps. Current expenditure accounted for approximately 95 percent of total government outlay in the last fiscal year. If the same pattern is repeated with the proceeds of remittance-backed bonds or Saudi-guaranteed sukuk, the country will have taken on more debt without generating the additional output needed to service it. The economic team in Islamabad must understand that new instruments serve no long-term purpose unless they finance activities that expand the productive base of the economy and generate returns sufficient to meet interest and principal obligations.
There is also the question of Pakistan’s international credit rating, which has never reached investment grade and, despite modest improvement in recent months, remains firmly in speculative territory. That rating is the primary reason portfolio investment flows remain negative despite Pakistan maintaining one of the highest discount rates in the region. Structural fiscal and economic reforms that build genuine competitiveness and institutional credibility are the only path to an investment-grade rating. Bilateral borrowing, however generously structured, cannot substitute for that process.
Finally, Islamabad has reportedly asked Riyadh to invest in a public investment fund to explore opportunities in Pakistan. This is puzzling. Pakistan already has a large and growing pile of non-binding Memoranda of Understanding with Saudi Arabia and other partners, most of which have produced little tangible activity. The more pressing and more productive request would have been to convert existing MoUs into binding contractual commitments with defined timelines and accountability mechanisms. Announcing new frameworks when existing ones remain unimplemented sends the wrong signal about Pakistan’s seriousness as a destination for foreign capital.
The Saudi engagement is important and must be pursued with care. But Pakistan’s long-term financial stability cannot be borrowed indefinitely. It must be built.
