Unless Islamabad undertakes structural economic reforms and resolves lingering political instability, Riyadh is unlikely to play the savior this time around.
Imran Khan’s removal as Pakistan’s prime minister in April 2022 sparked a political crisis, and a year after his departure, it shows no signs of abating.
The political upheaval in Islamabad has turned into a major cataclysm with implications for the political, economic and social life of the country. And while Pakistan is teetering on the brink of financial failure, its traditional partners are not coming to the rescue.
Khan was eventually removed from power by a vote of no confidence in parliament after a dispute with Pakistan’s army chief over the removal of his popular intelligence chief. After also refusing to allow the US to use Afghan bases for operations in the country, Khan became a liability to Pakistan’s military establishment.
Following his removal, mass demonstrations broke out across Pakistan, along with rare protests in the Arab Gulf states, suggesting that Khan’s electoral base remained firmly behind him.
Meanwhile, the coalition government that replaced him, led by Prime Minister Shehbaz Sharif and backed by the military, fell deeper into the throes of the financial crisis – and the International Monetary Fund (IMF) postponed a multibillion-dollar bailout.
Sharif’s government, considered more acceptable to global and regional stakeholders, was expected to be able to secure substantial financial grants from states such as Saudi Arabia, the United Arab Emirates and Qatar.
These assumptions were not unfounded, as the Sharif family has close ties to the Saudi royal family. Former Prime Minister Nawaz Sharif spent his political exile in the kingdom after Pakistan’s military coup in 1999. Unlike Khan, whose attempts to establish himself as the leader of the Muslim world brought him into the crosshairs of Riyadh, Shehbaz Sharif was expected to be politically servile to the kingdom.
Installation costs
Many believed that this political obedience and Sharif’s personal ties to the Gulf royal families would eventually be enough to secure crucial financial aid for Pakistan – but so far this has not been the case. So why are the Arab states of the Persian Gulf, and especially Saudi Arabia, reluctant to intervene?
Over the past decade, Saudi Arabia has provided several financial bailouts to Pakistan, including, among others, a $1.5 billion loan in 2014, a $3 billion deposit in 2018, and another $3 billion in 2021. A year ago, Sharif’s government approached Saudi Arabia with a request for a new support package, and last August, Riyadh decided to restore $3 billion in deposits while Pakistan continued negotiations with the IMF.
After Pakistan failed to reach a final deal with the IMF, the Saudis did not initiate any new bailout package. Last November, General Asim Munir took command of the Pakistan Army and made a quick visit to Saudi Arabia; following his trip, there were reports that the Gulf state was considering increasing its deposits with Pakistan’s central bank to $5 billion and making further investments in the country. But apart from a recent $1 billion deal in the oil sector, little has materialized.
The reasons for Saudi Arabia’s caution cut across the political, economic and geostrategic domains. While Riyadh has long been a source of financial support for Pakistan, its economic crisis has only worsened and successive governments have been reluctant to fully implement IMF reforms due to their inherent political costs.
This raised questions in Saudi decision-making quarters about the wisdom of repeatedly bailing out Pakistan’s economy. At the same time, Saudi Arabia’s no-holds-barred approach to foreign aid is generally changing, and the kingdom is in talks with international financial institutions about new ways to support cash-strapped states like Pakistan.
It is becoming clear that fiscal belt-tightening and improved governance practices are no longer just demands of the IMF, but also conditions of Saudi Arabia’s aid to Pakistan.
Political instability
Saudi reluctance to provide financial aid to Pakistan also has a political dimension. Since being ousted from power, Khan has continued to gain ground against the current government, with a recent poll showing his popularity at 61 percent, compared to just 32 percent for the incumbent prime minister.
As a federal government, it seeks to avoid holding elections in key provinces and as a target for politicians and political operatives. from the authorities continues, political instability is a matter of course. The former Saudi ambassador to Pakistan’s emphasis on the link between political and economic stability further suggests that renewed financial engagement depends on rapprochement between various political players and state institutions.
Newly forged rapprochement between Riyadh and Tehran will reduce Saudi Arabia’s need for security dependence
The Saudi-Pakistani relationship also has a geostrategic angle. The two countries maintain close defense ties and their armed forces regularly hold joint exercises. Pakistan has also sent troops to Saudi Arabia in training and advisory roles. In this way, Pakistan continues to indirectly contribute to Saudi Arabia’s national security.
Yet Pakistan’s defense engagement with Saudi Arabia has become increasingly low-key and of more tactical importance – a far cry from its military presence in the kingdom during the Iran-Iraq war.
Although Saudi Arabia has recently deposited $1 billion and $5 billion in the central banks of Yemen and Turkey, respectively, out of geostrategic sensitivities — and notwithstanding its newly adopted approach to foreign aid — little appetite for support remains in Saudi decision-making quarters. provide similar assistance to Pakistan.
Moreover, the newly created rapprochement between Riyadh and Tehran will reduce the need for such security
