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Saudi Arabia likely to give $500m grant to Pakistan

* Grant to improve foreign exchange reserves, reduce fiscal deficit
* Deferred payment mechanism would have provided foreign exchange cushion of $6bn

By Zafar Bhutta

ISLAMABAD: Saudi Arabia is likely to give Pakistan $500 million in grant rather than an oil import facility on one-year deferred payment to offset oil prices shocks, sources in the Petroleum Ministry told Daily Times on Thursday.

The sources said the grant would help improve Pakistan’s foreign exchange reserves position and reduce its fiscal deficit. The hike in POL prices in recent months has strained country’s resources severely, they said.

The Saudi move to award the grant comes in the wake of Prime Minister Yousuf Raza Gilani’s visit to Saudi Arabia, the sources said. During the visit, it was discussed that Saudi Arabia could either provide grant to ease payments on oil import or grant oil credit facility on deferred payment.

In case the grant comes through, it would be the second such concession during the current financial year as the Saudi government had provided $300 million to Pakistan in March to control budgetary gaps. According to officials, the previous grant had come after former President Pervez Musharraf’s visit to Saudi Arabia.

Deferred payment: Pakistan imports 110,000 barrels of oil per day and around 40 million barrels a year, the sources said, adding that if the two countries had agreed on an oil credit facility on one year deferred payment, Saudi Arabia would be providing Pakistan a foreign exchange cushion of $6 billion.

The government had hoped for either an extension in deferred payments period or oil supply without interest rates. At present, Pakistan imports oil from Saudi Arabia on 30 days credit facility.

The sources said Pakistan had also asked Saudi Arabia to restore the former special oil facility (SOF) under which Pakistan got oil after the 1998 nuclear tests. The SOF was later converted into the credit facility.

The sources said the government has projected budget deficit of Rs 753 billion for the year 2008-09 against previous year’s budget deficit of Rs 399 billion. They said the projected higher budget deficit is follows higher subsidies to the power and oil sector. The government paid Rs 165 billion differential claims to oil marketing companies that the government borrowed from domestic commercial banks.

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