In January 2023, Saudi Arabia’s Crown Prince Mohammad bin Salman received Pakistan’s newly appointed Army Chief General Asim Munir at his winter camp in Al-Ula. While conversations centered on defense cooperation, Pakistan’s policy elite hoped the visit would secure essential cash aid to fend off a deteriorating economic situation. Only a day after General Munir’s visit, MBS answered Pakistan’s pleas and issued directives to increase financial support to the country. However, the Saudi prince also stated that his country will no longer provide unconditional aid to Pakistan. In a tough economic environment, Islamabad must leverage its security provisions and human talent to attract continued Saudi assistance.
Currently, Islamabad has an opportunity to reassert itself in Riyadh’s chessboard, given longstanding ties between the Sharifs and the top echelons in the Saudi leadership. However, relations between Pakistan and Riyadh took a downturn during Imran Khan’s tenure, especially in 2019 when he decided not to attend the Kuala Lumpur Summit citing pressure from the Saudis and in 2020 when former Foreign Minister Shah Mahmood Qureshi criticized Riyadh’s lackluster response on the Kashmir issue. With the Sharif-led government in power, Islamabad must act now.
Geopolitics are also at play. Strong economic ties between India and Saudi Arabia are fast closing space for Pakistan to secure footing in the regional geopolitical map. Moreover, the KSA perceives an increasingly hostile environment in the Middle East, with Iran at the center, and has shown interest in diversifying its Public Investment Fund (PIF), which entails that KSA has no restrictions on the funds available for foreign investment. While the space for action is narrowing, Islamabad still has maneuvering room.
Islamabad should tactfully leverage its security partnership to attract greater Saudi investments while training its workforce for placements abroad. Pakistan provides fertile ground for Saudi investment, while stronger security ties help check potential Iranian influence in Pakistan, a shared goal of Islamabad and Riyadh. That said, moving ahead, Islamabad must shift away from debt dependency on cash aid and use Saudi help to invest in mutually beneficial partnerships and build sustainable linkages.
Saudi-Pakistan Military Relationship
Pakistan has long been an important part of Riyadh’s regional blueprint, primarily due to its geostrategic location and their shared security arrangement. This is bolstered by the fact that support by a key Muslim-majority country can be viewed as an inscription to KSA’s claim that it is the rightful guardian of Islam’s two holiest sites.
Since the 1960s, Pakistan and Saudi Arabia have fostered security cooperation. In 1969, Pakistani pilots were in charge of the Royal Saudi Air Force jets in the Kingdom’s conflict with Yemen. Ten years later, Pakistan played an important part in stopping the seizure of the Holy Kabbah. By signing a defense pact in 1982, the two sides institutionalized the deployment of Pakistani troops on Saudi soil. This was further expanded to include trainings, joint exercises, and intelligence sharing. At present, approximately 1,800 Pakistani military personnel are stationed in Saudi Arabia.
Current Economic Situation of Pakistan
Pakistan and the International Monetary Fund (IMF) have a long history, with Islamabad approaching the IMF 22 times in the past 75 years. In August 2022, the Pakistani government managed to procure a loan worth $1.2 billion from the IMF. The second tranche of the loan has been withheld citing disagreements over fiscal policies. Moreover, there is concern that the pledges worth over $8 billion made by various organizations including the Islamic Development Bank and the European Union (EU), during the International Conference on Climate Resilient Pakistan may be made conditional to the revival of the IMF program.
Presently, Pakistan is going through a balance of payments crisis. On February 9, 2023, it was reported that the forex reserves had fallen below $3 billion. In October 2022, the inflation rate increased to 26 percent and in January 2023, it was reported that the average inflation rate for the first six months of 2023 could average 33 percent. The overall unemployment rate is 6.3 percent, out of which 31 percent comprises fresh graduates. Since 2010, foreign direct investment (FDI) in Pakistan has been approximately 0.8 percent of the GDP. The Asian Development Bank’s recent report summarizes Pakistan’s FY2023 outlook stating its economy is “expected to slow real Gross Domestic Product (GDP) growth in combination with a tight monetary stance, high inflation, and an un-conducive global environment.” To add to the crisis at hand, Pakistan suffered catastrophic floods in 2022, which resulted in an approximate loss of more than $30 billion.
Islamabad needs foreign assistance, including from Saudi Arabia, to stay afloat. From 2018-2022, Riyadh’s support to Pakistan exceeded $22 billion. Citing official sources, between April to November 2022, Riyadh has already given “more than $900 million in aid and $500 million for importing oil.” While Pakistan requires additional assistance, its continued economic woes have witnessed foreign investors withdraw direct investments. Facing increasing hesitancy, Pakistan must enhance its attractiveness to potential investors.
Avenues for Improving Pakistan-Saudi Arabia Ties
Pakistan can more easily facilitate joint security provision with the KSA, especially in terms of assistance, advice, training, and arms exports. Pakistan’s role as a security provider is bolstered by its position as the only Muslim-majority country with nuclear capabilities. Moreover, given that the United States has repositioned its forces away from the Middle East, Riyadh may seek new avenues to allay its security concerns, especially vis-à-vis Iran. With troops already stationed in Saudi Arabia, Pakistan presents a viable option
To strengthen KSA’s deterrence capacity, Pakistan should boost its troop presence in the Kingdom. Since this will fall under the purview of the already existing agreement, there is unlikely to be any danger of Iranian vexation. Moreover, in addition to having troops on the ground, Pakistan can establish a formal advise commission. While domestic demands on Pakistan security forces are ever-increasing, allocating forces to the KSA gives Pakistan a much-needed foot in the door amidst a growing threat of becoming irrelevant in the face of increasing competition from other South Asian nations. Troop deployment has created a “unique bond” between the two countries.
Saudi Arabia also seeks to expand global linkages. Riyadh can do so in Pakistan by integrating Saudi national Vision 2030 with Pakistan’s Sustainable Development Goal (SDGS) agenda. Special Economic Zones (SEZs) in Pakistan could cater to foreign direct investment by Saudi Arabia. For example, Saudi investment in Sialkot, the nucleus of sporting goods in Pakistan, would help achieve the KSA’s goal of promoting sports, as outlined in Vision 2030.
It is crucial for both Pakistani and Saudi businessmen to determine areas of complementarity and comparative advantage between the two countries. The chambers of commerce on both ends need more frequent interaction and a framework for required legal reforms, which will ensure a smooth return on investments. In addition, Pakistan and Saudi Arabia should jointly work on identifying which elements of Saudi Vision 2030 projects can be carried out in Pakistan, under the purview of the Saudi Arabia Pakistan Supreme Coordination (SPSCC). While development will be concentrated in Pakistan, projects will benefit Saudi Arabia. Furthermore, a Pakistan-Saudi traders’ exhibition should take place in major cities to market resources and attract FDI into Pakistan. A free trade agreement is also possible.
For Pakistan, remittances are the country’s most important source of secondary income. Remittances from the Pakistani Diaspora made up about nine percent of Pakistan’s GDP in 2020. Out of this, almost 60 percent of income derives from the Gulf countries, primarily Saudi Arabia which hosts approximately two million Pakistani workers. At present, most of this workforce comprises unskilled laborers, which are inadequate to the opportunities the Kingdom offers in the IT, tourism, and financial sectors. Over 60 percent of Pakistan’s population is under the age of 30 and seeks employment opportunities in a deteriorating economic environment. To harness the potential of its youth bulge, Pakistan needs to create vocational institutes to train workers in line with the requirements of the Kingdom since there are more and better-paying opportunities in KSA compared to Pakistan.
Islamabad must carry out painful economic reforms to resuscitate investor confidence and reduce its reliance on foreign assistance. However, in the meantime, Islamabad finds itself in a difficult position. With a young, dynamic leader at the helm in Riyadh, the time is ripe for Pakistan to build leverage where it can. While on the surface, Islamabad does not appear to have much to offer, especially in terms of an economic value proposition, Pakistan can discerningly strategize geo-security to meet its geo-economic requirements. Undoubtedly, attracting sizeable inward investment will help bridge the balance of the payments gap and provide Pakistan’s flailing economy with much-needed relief and help eliminate the need to seek frequent bailouts.
Image 1: Aamir Qureshi/AFP via Getty Images
Image 2: Saudi Royal Council / Handout/Anadolu Agency via Getty Images