Pakistan inks agreement with Saudi Arabia-based bank to borrow $4.5 billion

With the much touted China Pakistan Economic Corridor (CPEC) proving to be a flop show, Pakistan, which was already deep in debt, has seen its economic condition worsen further.

Islamabad (Pakistan): 

Pakistan is facing a multitude of problems on the domestic and economic front. Already reeling from economic problems and domestic discord, Pakistan is now the brink of famine.

Apart from a massive water shortage, Pakistan is plagued by an economic crisis, which has been further deepened by the coronavirus pandemic.

With the much touted China Pakistan Economic Corridor (CPEC) proving to be a flop show, Pakistan, which was already deep in debt, has seen its economic condition worsen further.

A debt-ridden Pakistan has signed an agreement with Saudi Arabia-based Islamic Development Bank (IDB) to borrow USD 4.5 billion to alleviate oil and gas shortages that are crippling the economy and people's livelihoods through power cuts and fuel disruptions.

The loan, issued by IDB, will be used to pay for crude oil, refined petroleum products, liquefied natural gas (LNG) and industrial chemical urea over the next three years, Asia Times reported. The agreement was reached with the International Islamic Trade Finance Corporation (ITFC), the trading arm of the Jeddah-based IDB.

The opposition parties blame the crisis on lethargy and mismanagement by the Prime Minister Imran Khan-led PTI government. They have pointed to delays in buying furnace oil and say a vessel crucial to the distribution of LNG is inexplicably out of action in drydock when it is most needed.

The energy shortfall has hit power generation hard in the country amid reduced water flows into the Mangla and Tarbela hydroelectric dams on the Jhelum and Indus rivers.

Citing the reports, Asia Times reported that dam water levels are now so low they can hardly turn the turbines at full capacity. The situation worsened on Friday when the hydropower shortfall exceeded 4,000 megawatts. Pakistan generates about 7,320 megawatts from its reservoirs.

As the power situation deteriorated, the government last week cut water distribution to provinces by 10 per cent, with more cuts planned if the situation does not improve. Low water supplies have reportedly hit the production of rice, sugarcane, cotton crops as well as orchards in Sindh and Punjab provinces.

The government has also suspended gas supplies to non-export industrial units and compressed natural gas (CNG) stations to meet domestic demand for gas.

Farrukh Saleem, an Islamabad-based Pakistani political scientist, economist and financial analyst, told Asia Times that mismanagement, lack of planning and non-adherence to supply chain mechanisms are behind the crisis.

Pakistan Muslim League-Nawaz (PML-N) leader and former finance minister Miftah Ismail said the Imran Khan government was directly responsible for the energy crisis. He added that the government continued to delay the purchase of furnace oil and then went for it in haste at an exorbitant price when the crisis became apparent.

Pakistan's energy woes have been compounded by a deal with Saudi Arabia that has turned sour. The Saudis agreed in 2018 to help Pakistan stave off a current account crisis with $3 billion in currency support for a year, reported Asia Times.

It further reported that this was supplemented in 2019 with a deal that said the Saudis would supply oil for three years for which Pakistan would make deferred payments. However, the Saudis ended the arrangement after one year for reasons which were not made public.