SINGAPORE (Reuters) – Saudi Arabia has agreed in principle to defer payments for crude oil sales to Pakistan expected to be worth about $5.9 billion (3 billion pounds) during Pakistan’s present July-June financial year, The Financial Times reported on Saturday.
The agreement would provide a significant boost to the south Asian country’s economy just when it is coping with fast-mounting political and economic difficulties, the FT said. “There is an agreement in principle to defer oil payments. The modalities are being worked out,” Pakistan’s de facto finance minister Naveed Qamar was quoted as saying in an FT interview on Friday night.
Qamar would not discuss the timespan for which payments on Saudi oil shipments would be deferred, but an official from the petroleum ministry in Islamabad separately told the FT that the agreement involved deferring payments until at least June 2009 when the financial year ended.
It was not clear if the deferred payments would be paid back. One western diplomat familiar with Saudi ties to Pakistan said the Saudis in 1998 began supplying crude oil under a deferred payment plan after Pakistan carried out its maiden nuclear tests and came under international sanctions.
“In that previous case, after three years of deferred payments, the Saudis practically wrote off the payments. It would be interesting to see if there is going to be a write-off in future of the deferred payments now under discussion,” he said.
The Pakistani rupee has fallen about 18 percent against the dollar this year as annual inflation accelerated to a three-decade high above 19 percent and fiscal and current account deficits have widened, due largely to a soaring oil import bill.
Foreign exchange reserves have fallen sharply, largely because of the oil payments and withdrawals from Pakistan’s stock market, but some funds have begun flowing back into the country in the form of loans from multilateral lenders and friendly governments.
The benchmark KSE-100 index on the Karachi Stock Exchange has fallen about 25 percent from an all-time high in April this year.
According to Pakistani officials, Saudi Arabia sells about 110,000 barrels of crude oil daily to Pakistan or about 40 million barrels a year, which at Friday’s new record above $147 a barrel would be worth about $5.88 billion, the Financial Times report said.