Why Saudi Arabia is extending $3 bn lifeline to Pak: Reasons Riyadh continues to bankroll Islamabad’s struggling economy

Saudi Arabia has extended its $3 billion financial support to Pakistan for a longer period, offering Islamabad relief as it grapples with external debt repayments and pressure on its foreign exchange reserves.

The rollover also underscores the growing closeness between the two countries, whose relationship has recently expanded beyond financial assistance to defence and regional security cooperation.

Pakistan Finance Minister Muhammad Aurangzeb confirmed the extension on Wednesday, saying Riyadh had agreed to keep the financing in place for a “reasonable period”, without specifying a new maturity date.

“It has been extended and for a reasonable period. You don’t need to worry as to for how long given the kind of strategic relationship we have,” Aurangzeb told reporters in Islamabad, Dawn reported.

The $3 billion facility was provided by Saudi Arabia in April to help Pakistan meet a $3.5 billion repayment to the United Arab Emirates (UAE). The financing matured on October 31 under its original three-month term.

The extension comes as prospects of a proposed $10 billion US backstop facility for Pakistan appear to have weakened, as per the report.

Riyadh had also extended a separate $5 billion deposit for Pakistan until 2028, Dawn reported.

Why does Pakistan need Saudi Arabia’s $3 billion financial support?

Pakistan has been struggling to meet its external financing requirements, including debt repayments and the need to maintain adequate foreign exchange reserves.

The immediate pressure behind the latest Saudi financing dates back to April, when the UAE sought repayment of $3.5 billion it had provided to Pakistan.

Islamabad repaid the amount, creating a financing gap and putting additional pressure on its foreign exchange reserves.

Saudi Arabia stepped in with the $3 billion facility to help Pakistan manage the repayment and shore up its external account.

The latest rollover means Islamabad can continue to count on that funding instead of having to arrange an immediate repayment, providing some relief to its strained external finances.

Pakistan’s dependence on external financial support has been a recurring feature of its economic challenges.

The country has also relied on assistance from the International Monetary Fund (IMF) to stabilise its economy and manage its balance of payments.

According to Aurangzeb, Pakistan is targeting a $4 billion reduction in external debt during the current fiscal year, followed by another $3.5 billion next year.

The finance minister has said the government wants to replace expensive short-term borrowing with longer-term financing through bonds and private placements to reduce refinancing risks.

Why does Saudi Arabia continue to bankroll Pakistan?

Saudi Arabia’s financial support is rooted in its longstanding strategic relationship with Pakistan.

The two countries have maintained close political, economic and defence ties, with Riyadh repeatedly stepping in when Islamabad faces pressure on its external accounts.

The latest extension also follows Saudi Arabia’s decision to keep its separate $5 billion deposit with Pakistan in place until 2028.

Together, the arrangements provide Islamabad with an important source of financial support as it attempts to reduce its dependence on short-term borrowing.

Pakistan has longstanding defence links with Saudi Arabia and remains an important military partner in the region. It is also the world’s only Muslim-majority nuclear-armed country.

The financial relationship comes amid deepening defence cooperation between Saudi Arabia, Pakistan and Turkey.

The three countries signed the Makkah Joint Defence Agreement on August 7, 2026. The agreement seeks to strengthen collective deterrence and stipulates that an armed attack against any one of the three countries would be regarded as an attack against all three.

Dawn reported that Pakistan and Saudi Arabia had already completed their ratification processes.

The agreement provides a framework for closer defence cooperation and collective security.

Pakistan is attempting to manage its debt burden by reducing its reliance on short-term financing and accessing international capital markets.

Aurangzeb has said the government is exploring longer-term borrowing options, including Eurobonds, Panda bonds and Pakistani rupee-linked dollar-settled bonds.

Pakistan’s liquid foreign exchange reserves stand at around $26.86 billion, including $21.47 billion held by the State Bank of Pakistan and approximately $5.41 billion with commercial banks, according to figures cited by the finance minister.