Saudi Arabia’s new global aid policy an alarm bell for Pakistan

Announcement of Saudi assistance is the cornerstone of Pakistan’s economic recovery, but it first will have to enact economic reforms to receive the aid.

A Saudi flag flutters atop Saudi Arabia's consulate in Istanbul, Turkey, October 20, 2018. (photo credit: REUTERS/HUSEYIN ALDEMIR/FILE PHOTO)
A Saudi flag flutters atop Saudi Arabia's consulate in Istanbul, Turkey, October 20, 2018.
(photo credit: REUTERS/HUSEYIN ALDEMIR/FILE PHOTO)

[Islamabad] Pakistan is expecting immediate backing from Saudi Arabia to deal with its dreadful economic crisis, but the Saudi’s new global aid policy has made the situation more serious.

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Saudi Finance Minister Mohammed al-Jadaan announced the new policy on Wednesday during his speech at World Economic Forum in Davos, Switzerland.

While addressing the forum, Jadaan said: “We used to give direct grants and deposits without strings attached and we are changing that. We are working with multilateral institutions; emphasis will now be placed on economic reforms in friendly countries. We are taxing our people; we are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part.”

“We used to give direct grants and deposits without strings attached and we are changing that. We are working with multilateral institutions; emphasis will now be placed on economic reforms in friendly countries. We are taxing our people; we are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part.”

Mohammed al-Jadaan

The Saudi finance minister said that the kingdom would continue to help Pakistan, Turkey and Egypt, but called on them to enact economic reforms. “We want to be a role model for the region, encouraging countries around us to reform,” he also said. 

He said that it is a great deal of effort on the Saudis’ part to provide oil and funds to meet the countries’ energy needs, but that they “want it to be done.” 

 Saudi Crown Prince Mohammed bin Salman speaks during the Gulf Summit in Riyadh, Saudi Arabia (credit: VIA REUTERS) Saudi Crown Prince Mohammed bin Salman speaks during the Gulf Summit in Riyadh, Saudi Arabia (credit: VIA REUTERS)

Saudi Arabia has supported Pakistan in its every hour of trouble, but Jadaan’s speech in Davos has sounded the alarm for Pakistan.

Saudi Arabia and other Gulf countries such as the United Arab Emirates and Qatar have increasingly promoted investment rather than direct financial aid.

Earlier this month, the Crown Prince and Prime Minister of Saudi Arabia Mohammed bin Salman directed a review to increase investment in Pakistan to $10 billion.

According to the Saudi Press Agency (SPA), the crown prince also has asked the concerned authorities to consider increasing the amount kept as a deposit by Saudi Arabia in the Central Bank of Pakistan to $5 billion.

It is unclear whether Pakistan is included in the list of the friendly countries whose aid will have strings attached.

Will there be strings attached to Saudi aid to Pakistan?

Pakistan’s Secretary for Planning, Development and Special Initiatives Hamid Yaqoob Sheikh said in a statement that “the new Saudi strings will not be applied to the commitments already made, however, Saudi Arabia‘s new policy will be applicable in the future.”

He said Pakistan is hoping to receive $2 billion from Saudi Arabia in the coming month. 

Sheikh said that officials from the Saudi Fund for Development visited Islamabad in recent days and they did not mention any economic strings.   

“Saudi Arabia has already made a public announcement that it will increase Pakistan's foreign exchange reserves from $3 billion to $5 billion, and another $10 billion will be invested,” he said,  

Pakistan’s economy is plummeting which has badly affected all areas of life and no sector seems to be secure. Despite the crisis-level economic situation, the country's policymakers have not provided a concrete and viable solution to correct this problem.  

The coalition regime's “experienced economic team," under the leadership of Pakistan’s Finance Minister Ishaq Dar, has yet to show any significant performance. All emphasis is being placed on verbal claims and statements.

Another logical consequence of the worsening economic situation is that some reliable and friendly countries also are becoming inflexible.

Hammad Azhar, a former federal minister for economic affairs in Pakistan and the Imran Khan-led Pakistan Tehreek-e-Insaf Party’s advisor on economy, told The Media Line that “Saudi Arabia's announcement of aid conditional on economic reforms is certainly an alarm bell for Pakistan.”

“Be it Saudi Arabia or any other international financial institution, they only feel satisfaction and trust, when they negotiate with a popular and elected government. Unfortunately, the current coalition regime is neither popular nor elected by the masses; they are only imposed to get rid of corruption and money laundering cases,” he also said.

Azhar claims that the coalition government is “deliberately destroying the economy to impose economic emergency and avoid general elections.”

Azhar further told The Media Line: “Since April 2022, the people of Pakistan have seen the worst decision-making and governance pattern, they have looted the money of Pakistan and taken it to London, neither their children here, nor business, nor any interest. How can such people develop Pakistan? A leader is connected to the soil, and Imran Khan is a national visionary leader whose interests are connected to the soil of Pakistan.”

Saudi Arabia is not the only donor country that is calling on Pakistan and other countries that receive assistance to enact economic reform, Azhar adds. 

Mohammed AlHamed, a geopolitical analyst and president of the Saudi Elite group, told The Media Line that “Saudi Arabia wants the perfection of every country’s economy that wants financial aid. Saudi Arabia has no secret agenda in this regard. The sole ‘string’ is that the country should go forward to reform its economy and to create opportunities for foreign investment.”

“Saudi Arabia wants the perfection of every country’s economy that wants financial aid. Saudi Arabia has no secret agenda in this regard. The sole ‘string’ is that the country should go forward to reform its economy and to create opportunities for foreign investment.”

Mohammed AlHamed

AlHamed further told The Media Line that the economic reform required by Salman “has made the Saudi economy an excellent example for the entire world; in the same way, our friendly countries also stand on their own feet and become the cause of the prosperity of their people.”

AlHamed said that “Saudi Arabia won’t stop its financial aid to friendly countries who are facing economic challenges, but it will fix its strategy and ways to make aid more effective to solve economic crises and turn it into long-time investments, like a win-win strategy.”

The Saudis now believe that donations, grants and no-strings-attached aid are “only short-term palliatives because some countries' crises require far-reaching reforms,” according to AlHamed. “Saudi Arabia has adopted an open-door policy for the economic reforms of friendly countries.”

A senior official with Pakistan’s finance ministry, speaking on condition of anonymity, told The Media Line that the situation in the country is “critical” and that the country must show progress on economic reforms.

He further told The Media Line that: “When a country does not stand on its feet despite the continuous aid, it is considered a failure of economic policy. Economically stable countries are also prioritizing the welfare of their people first. We have to take imperative steps to convey the message to our friendly countries that Pakistan is serious about economic reforms.” 

Jazib Mumtaz, a Karachi-based senior research economist at the Policy Research Unit – Federation of Pakistan Chambers of Commerce & Industry, told The Media Line that the Saudi finance minister’s statement in Davos, that Saudi Arabia has decided not to aid friendly countries unconditionally until they put their economic houses in order, is “very pragmatic.”

“For Pakistan, it is time to move toward reforms and accept International Monetary Fund conditions to qualify for aid or loans from friendly countries. Reforms are necessary for long-term sustainability. Saudi Arabia ‘s stance will support countries in building their economic foundation for inclusive growth,” Mumtaz added.

Faran Jeffery, COO of the UK-based Midstone Centre for International Affairs, is an expert on geopolitics and foreign policy.

He told The Media Line that the countries like Pakistan “that have been historically taking no-strings-attached aid from Saudi Arabia, need to understand that this isn’t the old Saudi Arabia that they are used to. This is the Saudi Arabia of Crown Prince Mohammed Bin Salman. Saudis don’t want to be taken for a free ride just because they have some extra money to roll.”

Jeffery noted that Saudi Arabia is transitioning its economy away from petrodollars and “there’s no reason for the Saudis to pay for the expenses of failed states that are simply unwilling to change their bad habits.” 

He says the official economic strings could also come with a plethora of unofficial ones. 

“When it comes to Pakistan, it has a select few things to offer to Saudis; one of those key things being civil and military manpower and another being Pakistan’s border with Iran,” he added.

Jeffery further said that: “Such conditional aid could also be considered an investment in a way, since it will provide clarity to the receiving country that it can be stopped or delayed with a flip of a switch if Saudi conditions are not met.”