Saudi $3 billion lifeline extended as Pakistan moves to rein in external debt
ISLAMABAD (Staff Report): Saudi Arabia has extended its additional $3 billion financial support to Pakistan for a “reasonable period,” providing fresh support to the country’s external financing position as Islamabad seeks to reduce debt repayment pressures and strengthen its foreign exchange reserves.
Finance Minister Muhammad Aurangzeb confirmed the extension on Wednesday, saying the additional Saudi deposit had been rolled over, although he did not specify its new maturity date.
“Yes, its term has been extended,” Aurangzeb told reporters when asked about the $3 billion deposit. “It has been extended for a reasonable period.”
The extension, originally agreed in April this year, comes as Pakistan continues to manage substantial external debt obligations and relies on financial assistance from friendly countries alongside its $7 billion International Monetary Fund (IMF) programme.
Saudi Arabia has remained a major financial supporter of Pakistan, providing deposits, oil facilities and other assistance to help the country manage balance-of-payments pressures.
The latest $3 billion extension is separate from the Kingdom’s existing $5 billion deposit with the State Bank of Pakistan, which has already been rolled over until 2028.
The additional support is expected to help Pakistan maintain its foreign exchange reserves and meet external financial commitments, although the extension does not eliminate the country’s longer-term debt and refinancing challenges.
Aurangzeb also confirmed that the IMF executive board is expected to review Pakistan’s $7 billion programme in December, without giving a specific date.
Meanwhile, the government is pursuing a broader strategy to reduce external debt servicing and replace expensive short-term borrowing with longer-maturity financing.
Addressing a Senate committee meeting, the finance minister said Pakistan aimed to reduce external debt servicing to $3.5 billion in the next fiscal year, from an estimated $4 billion in the current fiscal year and $4.5 billion in the previous fiscal year.
“Our objective is very clear: we do not want to increase our external debt,” Aurangzeb said, adding that the government was repaying expensive short-term debt and replacing it with borrowing carrying maturities of five or ten years.
He said Pakistan’s external debt had increased by approximately $6 billion to $7 billion annually during the previous decade, rising from $45 billion in fiscal year 2015-16 to more than $100 billion at present.
However, the annual increase had slowed to approximately $1 billion over the past four years, according to the minister.
To diversify financing sources, Pakistan is pursuing further Eurobond and Panda Bond issuances, alongside rupee-linked, dollar-settled bonds.
The country raised $3 billion through an international bond issuance in the first week of September, attracting an order book of $6 billion.
Aurangzeb also acknowledged Pakistan’s request for a proposed $10 billion liquidity support facility from the United States, but said the government would continue with its financing plans even if the arrangement did not materialise.
Separately, Islamabad is exploring financing arrangements with the US Export-Import Bank and the US Development Finance Corporation to support American exporters and investors in Pakistan.
“That is real financing and real credit,” he said, distinguishing these arrangements from the proposed sovereign liquidity support facility.
On the country’s credit outlook, Aurangzeb said the government was targeting an upgrade in Pakistan’s sovereign credit rating to B-plus by the end of the current fiscal year or early next fiscal year, with a longer-term ambition of entering the double-B category.
He also informed the Senate committee that public debt had declined to 68.6 percent of gross domestic product (GDP) by the end of June 2026, compared with 75.1 percent in fiscal year 2022-23.
Year-on-year growth in public debt slowed to 7.7 percent in the last fiscal year, which the minister described as the lowest in 20 years.
Attributing the improvement partly to active liability management, Aurangzeb said the government had retired, bought back or exchanged approximately Rs5.9 trillion ($20.9 billion) in debt.
The amount included Rs3.6 trillion ($12.9 billion) in State Bank debt and Rs2.3 trillion ($8.2 billion) in market debt.
The government maintains that these measures, alongside continued support from international partners, will help reduce refinancing risks and improve Pakistan’s external financial position.