Reports from South Asia's second largest economy suggest it is preparing to greet Crown Prince Mohammad Bin Salman before February and sign more than $10bn in investment deals
News outlets in Pakistan are currently rife with speculation over whether Saudi Arabia’s Crown Prince Mohammad Bin Salman (known as MBS) is expected to visit and the implications it could have for foreign investment in the country.
If reports are to be believed – and they were able to predict the recent visit by UAE Crown Prince Mohammed Bin Zayed – MBS is expected to visit Islamabad as early as this month. According to Pakistan’s most read English language news outlet Dawn, Saudi Arabia could sign memorandums of understanding committing to invest $10bn in South Asia’s second largest economy.
Investments by Saudi Arabia could possibly include a new oil refinery through state-owned Saudi Aramco, power generations with renewable energy firm ACWA, as well as others in petrochemicals and mining.
According to a statement by Finance Minister Asad Umar, the deals could amount to “the biggest foreign investment in Pakistan’s history.”
A raging rumour mill is fuelled by comments from Umar, and Board of Investment Chairman Haroon Sharif during an ‘Ease of Doing Business’ (EODB) meeting chaired by Prime Minister Imran Khan last Wednesday.
The meeting was aimed at exploring ways that the Pakistani government can make it easier to invest in a country that has seen foreign direct investment decline due to investors being skittish on what an untested administration led by the former cricketer turned politician could mean for South Asia’s most volatile economy.
Foreign direct investment (FDI) in the country fell 55 percent to $161.2m in October, according to the State Bank of Pakistan, from the same period a year earlier. The decline came after FDI had already plunged 43 percent in the three month period earlier.
The Khan led administration, elected into power in July 2018, is eager to deliver an economic turnaround in a country that until recently was on the brink of bankruptcy owing to a balance of payments crisis. Things were also complicated by a Pakistani rupee that had lost 33 percent of its value to the dollar in five devaluations over 12 months until December 2018.
Frantic flights to meet with the IMF in Bali have delivered hardly any results – the IMF’s unwillingness to bail Pakistan out due is partly due to its largest donor, the United States’ vocal concerns that any package would be used to pay off loans being used to finance Pakistan’s portion of China’s new silkroad plans with the One Belt One Road initiative.
Meanwhile, Pakistan has been unwilling to share details of any Chinese investment and financing in the country, something the IMF insists it must examine to ascertain the level of assistance the South Asian economy is receiving from what is the effectively the US’ most important trade rival.
While Islamabad still hasn’t ruled out the possibility of striking an IMF deal for what it hopes will be “it’s last ever bailout,” it has also found powerful friends willing to keep the faith in Khan’s campaign promise of a ‘New Pakistan’.
Assistance from China, Saudi Arabia and the UAE in recent months have been “the breath of fresh air amid the doom and gloom that we inherited,” according to Khan in a recent interview with Dawn.
While China has requested for its agreement to not be revealed, The Arab World’s two most important economies, Saudi Arabia and the UAE, have both offered $3bn in cash deposits with the State Bank of Pakistan at interest rates of 3.18 percent to stabilise the rupee’s fortunes. For the next three years, they have also agreed to defer payment by a year for a combined 60 percent of Pakistan’s fuel import bill – amounting to $6.4bn – until it can get its economy moving again.
The country will also receive $1.5bn in trade finance from the Jeddah-based financing arm of the Islamic Development Bank, the International Islamic Trade Finance Corporation.
Approximately 65 percent of the purported investments by Saudi Arabia to be announced during Mohammed Bin Salman’s visit are expected to take place in Pakistan’s southern port city of Karachi – the ‘K’ in Emirates’ call sign.
Pakistan’s largest city and former capital, Karachi contributes roughly half of Pakistan’s annual revenues. Yet its decline from when it was a well-regarded metropolis has been well documented.
Efforts such as the EODB are looking at ways for the city’s restoration as a “world class city” according to a report by Dawn.
Meanwhile, Pakistan is also keen to develop its largest infrastructure project ever in Gwadar. The apex of the China Pakistan Economic Corridor, the third port city – earlier a cause of concern between Pakistan and the UAE – could be an important corridor for an economic windfall through trade flows such as freight as well as crude between the Arab world and South, Central and East Asia, as well as Russia.
It’s also where Saudi Arabia is looking to develop its new Aramco oil refinery, if reports hold true – there are also hints that the UAE might mirror any further investments by Saudi Arabia in Gwadar.
Whether those reports will validate themselves depends on if Pakistan is able to create, and deliver on, a viable economic plan for its future.