Skip to main content

Qatar offers a bailout to Pakistan

July 1, 2019 | Expert Insights

Background  

Foreign aid has been one of the primary sources of money for the Pakistani economy.

The country receives economic aid from several sources as loans and grants. The International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc. has provided long-term loans to Pakistan. Pakistan has taken 21 loans from IMF out of which 12 are bailouts. In 60 years, Pakistan has borrowed $27 billion as per the current value of Special Drawing Right (SDR).

Last year, Saudi Arabia decided to provide a bailout package of USD 6 billion to help resuscitate Pakistan's deteriorating economy. The Kingdom also agreed to establish a credit line for the sale of petroleum products on credit for three years to Islamabad and to give USD 3 billion in Pakistan's foreign currency reserves for a year. The United Arab Emirates also provided a $2 billion cash deposit.

China contributed $4.6 billion in the form of deposits and commercial loans. The China–Pakistan Economic Corridor is being developed with a contribution of mainly concessionary loans from China under the Belt and Road Initiative.

Qatar is the fourth nation that has come forward to rescue Pakistan from default in the past 11 months.

Analysis 

Pakistan has been the beneficiary of a bailout package of $3 billion from oil-rich Qatar, a day after Emir Sheikh Tamim bin Hamad concluded his visit to Islamabad. The Emir of Qatar agreed to invest in expanding collaboration in the fields of agriculture and food, enhancing the energy sector, including LNG and LPG fields and in the exploration and production of oil and gas. 

Pakistan and Qatar signed three significant agreements, including one on sharing financial intelligence and checking money-laundering and terror financing. This is being viewed as a significant development in the bilateral ties.

Qatar's financial assistance was announced by its foreign minister Sheikh Mohammed bin Abdulrahman Al Thani.  The official Qatar News Agency tweeted, "Upon the directives of HH the Amir, the Deputy Prime Minister and Minister of Foreign Affairs announces new investments in the form of deposits and direct investments worth a total of $3 billion in the Islamic Republic of Pakistan." "The Qatari-Pakistani economic partnership will amount to $9 billion. Qatar affirms its aspiration for further development in the relations between the two countries at all political, economic, sports and cultural levels," he said.

Dr. Abdul Hafeez Shaikh, Advisor to Pakistan Prime Minister on Finance, confirmed the Qatari financial help through his Twitter handle. "I want to thank the Emir of Qatar HRH Sheikh Tamim Bin Hamad Al Thani for announcing $3 billion in deposits and direct investments for Pakistan and for Qatar's affirmation to further develop relations between the two countries", Shaikh tweeted.

The government of Pakistan fell short of broadening the tax base or privatizing state-owned companies as the IMF had hoped. In addition, higher oil prices and growth demanded more imports, widened the current account gap, and reserves began to slide with the currency being devalued multiple times. Due to these reasons, Pakistan has failed to meet the conditions attached to its previous IMF loans. According to the IMF, Pakistan’s growth (which hit 5.8 per cent in the 12 months to the end of June 2018) will slow to 4 per cent in 2019 and about 3 per cent in the medium term.

Khan’s government has taken measures to tackle the fiscal deficit by increasing exports and attracting investments. Besides tax reforms, the government has made reforms to bring ease of doing business. Citing immense potential for religious tourism, Pakistan has initiated new programs in this area, to attract an increase in revenue.

Assessment

Our assessment is that Qatar has likely extended this financial aid because it is seeking assistance from the Pakistan Army for the security preparations of the FIFA World Cup due in 2022 in Doha.  

We feel that Qatar would expect from Pakistan is to join the Turkish-Qatari axis, after Pakistan managed to garner much-needed support from Turkey in time to to avoid being placed on the Financial Action Task Force (FATF) blacklist. According to our analysis, the Pakistani Airforce personnel training to fly Qatar’s Rafael airplanes has to be taken into consideration too.

During the Saudi led blockade, Pakistan remained neutral and declared that it would not take sides in the diplomatic crisis and we feel Pakistan will continue to remain this way.

We feel that Qatar is also playing host to negotiations between the US and Taliban. There has been no breakthroughs in the talks yet, and we believe that Pakistan is under pressure to ensure an outcome to these talks.

Read more: