Is Saudi Arabia Recalibrating its Relationship with Pakistan?

Saudi Arabia has often been touted as the springboard of support for the Pakistani political establishment. This Gulf Arab monarchy has for many decades opened its financial largesse to sustain Islamabad’s declining economy. This aid has been critical in helping the country address its economic woes amidst political instability, corruption, and never-ending extremism. Saudi credit has helped Pakistan finance its imports, service its debts, meet its other financial obligations, and, importantly, maintain its foreign policy goals. Were it not for the credit lines extended by Riyadh to Islamabad, Pakistan’s economy would have tanked long ago.

Some of Saudi Arabia’s generous aid instalments to bail out Pakistan and revive its economy in recent years include extending an $8bn financial cushion to revive Pakistan’s economy in May 2022 as the country looked at the cusp of default. Earlier, the Kingdom had infused the Pakistani economy with $1.5bn in 2013, $6bn in 2018 (including $3bn “as balance of payment support” and $3 bn in deferred oil payments), and $3bn in 2021. However, of late, multiple reports suggest that there has been a significant shift in this trend, with many Gulf Arab governments not being supportive and forthcoming, unlike in the past in making generous financial offerings to Pakistan, accusing its militablishment of chronic corruption and are expressing their surprise at its unwillingness to address this issue with the seriousness that is required.

A report in Middle East Eye (MEE) on 18 March 2023 claimed that  Saudi Arabia has declined to offer any more financial aid that included interest-free loans and bailouts, to Pakistan. Even as Pakistan battles an economic emergency and requires significant US dollar inflows to avoid defaulting on international loan repayments over the next three and a half years, what shocked its militablishment more was the rebuff to the Pakistani Army Chief, who has otherwise been perceived as a defacto guarantor of the continuity in reciprocatory relations by the Gulf governments.

This is not just a rebuff but suggests how Saudis have stopped viewing Pakistan through the prism of a brotherly Muslim country whose existence and survival remained a matter of faith for the Muslim world. Instead, Pakistan is being viewed increasingly as a liability and a restraining factor in realising Saudi Arabia’s economic goals. Therefore, it is useful to ask: Does it signify a major shift in Riyadh’s engagements with Islamabad?

Background

Pakistan and Saudi Arabia have largely maintained strong relations for decades, which starddle political, strategic, military and economic spheres. For  long, it acted as the regional balancing power against Iran. Their relations accrued military and intelligence significance during the 1960s as the Kingdom navigated the rough waters of Nasserite pan-Arabism. Following the 1967 military bilateral cooperation agreement, Pakistan extended its extensive military support to Saudi Arabia, including air force training and maintenance, troop deployment for security duties, and joint military exercises.

Interestingly, the Pakistan Army deployed a good number of its forces to secure the Kingdom’s borders during the 1970s amid the rising Iranian threat following the dethroning of the Iranian Shah regime as a consequence of the revolution. Islamabad reinforced Saudi defences by providing another brigade during the Iraqi invasion of Kuwait to secure its borders. As such, two brigade-level Pakistani Army personnel have remained stationed in the Tabuk and Khamis regions of the Kingdom ever since. The highlight of this strategic partnership has been their ‘unacknowledged’ nuclear understanding wherein Islamabad would extend its deterrence arc over Riyadh should the Saudis ever require it.

In return, apart from the generous financial assistance, including large oil subsidies, Saudi Arabia offered its unhindered backing to Pakistan over its strategic interests, such as support to Pakistan’s stance on Kashmir. Pakistan also remained an important factor in Riyadh’s engagements with India. It looks like Islamabad has lost substantial diplomatic capital it had carefully cultivated over the decades in the name of Islamic solidarity.

Pakistan’s Current Economic Woes

Pakistan remains at the risk of defaulting on its massive external debt obligations. Its foreign exchange reserves are running dangerously low, making it impossible to finance even a month's imports. As of December 2022, its debt and other liabilities were estimated at around $126.3 billion, with a mere $3 billion in foreign exchange reserves. Of this, the Pakistani government owes nearly three-fourths (77 per cent) of this debt, which is equivalent to $97.5 billion, to different external creditors. Even as Shehbaz Sharif’s government struggles to finance its imports, service its debts, and meet its other financial obligations, the continuing depreciation of the Pakistani rupee (PKR) against the US dollar is only making it harder to meet its monetary obligations.

The country’s inflation currently stands at 36.4% (April 2023), the highest since December 1973. Likewise, its unemployment rate has risen to to 6.5 percent  in December 2022, and 31 percent of it are graduate. These circumstances have put the Pakistani government in check to take drastic measures to stabilise the economy.

Even as the militablishment has engaged in multiple rounds of difficult negotiations with the International Monetary Fund (IMF) since 2019 for a comprehensive bailout package (13th since the 1980s), which remains elusive as of now, the Pakistani government has turned to Saudi Arabia and other traditional allies, including the Gulf Arab monarchies, for support. Though Riyadh extended a $3 billion credit line in 2021, supplemented by a further pledge of $6 Bn in May 2022, the overall response has been lukewarm. Should it fail to secure a dollar infusion into its economy, it would be harder for Pakistan to obtain further international loans as the country’s credit rating has been effectively downgraded to the lowest levels.

Reasons for the Shift in Trend

There are several reasons why Saudi Arabia’s policy towards Pakistan appears to be undergoing a major shift. These include Riyadh’s changing geopolitical priorities and perception of massive corruption in Pakistan. Saudi Arabia is in its own way seeking to adapt to the changing geopolitical landscape in the region and has reshaped its policy outlook accordingly. Its de facto ruler, Crown Prince Mohammad Bin Salman, has prioritised Saudi national interests over everything else and often taken a hawkish approach to ensure Kingdom’s regional and pan-Islamic leadership credentials.

This is pretty much evident in the way he dealt with Pakistan’s approach to the conflict in Yemen. As Saudi Arabia organised a military alliance for its Yemen campaign to restore the government of President Mansour Hadi which was overthrown by the Iran-aligned Houthi Shia militia in 2015, Nawaz Sharif’s government failed to earn the parliamentary confidence to commit its military support for Saudi Arabia. This was perceived by many in the Saudi establishment as an affront to its years of no-strings financial support and hence might have forced Riyadh to introduce an element of caution in its dealings with Islamabad.

This was further reinforced as Pakistan maintained a critical distance during the Saudi-led blockade against Qatar starting 2017. Further, Pakistan’s realignment with China and, by extension, largely cordial relations with Iran also contributed to Riyadh’s recalibration of its hitherto unstinted support to Islamabad. This was manifested by the diluted response of the Kingdom to Pakistan’s calls for a unified front against India in the aftermath of New Delhi’s constitutional rearrangement in Jammu and Kashmir in 2019.

Another reason for this recalibration is the changed Saudi perception of the Pakistani establishment as corrupt, sustained on a culture of nepotism and cronyism, and uninterested in reforming the country’s economy. As referred to above, the Middle East Eye report claims that there is a general perception in the Saudi government circles that Pakistan’s militablishment has not shown much interest in restructuring its economy and has instead embezzled and squandered foreign aid. As such, like IMF, Saudi Arabia has reportedly conditioned its financial relief to Pakistan's implementation of strict monetary and fiscal reforms and a drastic reduction in current account deficits.

At the same time, these conditions are effectively aligned with the Kingdom’s new aid policy, as was articulated by its finance minister Mohammad Al Balaad at the World Economic Forum, Davos, in January 2023: “We used to give direct grants and deposits without strings attached and we are changing that. We are working with multilateral institutions; emphasis will now be placed on economic reforms in friendly countries. We are taxing our people; we are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part”.

Therefore, while Pakistani militablishment might have believed that Islamabad would be given an exemption by the Kingdom, the Saudis have adopted caution about pledging any aid and investment. This clearly reflects Riyadh’s readjusted policy outlook towards Pakistan.

Way Forward

Saudi Arabia has been a critical factor that has helped Pakistan deal with multiple crises over the years. Saudi generous financial handouts have helped the country avoid economic defaults  in the past. In the face of Saudi recalibration of its financial aid policy and manifest dissatisfaction about Pakistan military squandering its oil money eggregriously, it is time for Pakistan to understand that the rhetoric of the Islamic card has run its course.

At the same time, the Pakistani establishment should shed its obduracy and understand that it cannot continue mismanaging its economy to feed the corruption chain and expect others to come to its aid every time it goes south. Therefore, it must address its economic challenges through economic reforms and improve its governance through transparency measures to earn the confidence of the external creditors, be it IMF or Saudi Arabia, to attract the required capital to stabilise its economy.

* Mohmad Waseem Malla is a Research Fellow with the International Centre for Peace Studies, New Delhi, India. He can be reached at anthemwaseem@gmail.com. The views expressed are his own.