Prime Minister Shehbaz Sharif has committed to implementing the 27 Memorandums of Understanding (MoUs) signed between Pakistan and Saudi Arabia, amounting to $2.2 billion, during his recent address. Addressing an event in Islamabad, PM Shehbaz said: “The agreements of cooperation with Saudi Arabia is the new development. We welcome the Saudi investment of over $2 billion.” The premier acknowledged the visit of the delegation spearheaded by the Saudi Investment Minister Khalid bin Abdulaziz Al-Falih, saying, “The Saudi crown prince has kept keen interest in the development of Pakistan. The partnership between the two countries will further bolster the ties between the two countries.”
The agreements reflect a deepening of economic and diplomatic ties between the two nations, with the MoUs covering various sectors, including energy, trade, infrastructure, and technology. While the agreements hold the potential for significant investment, the real challenge lies in translating these memorandums into actual financial inflows and projects on the ground.
Pakistan and Saudi Arabia share a long history of economic cooperation. Saudi Arabia has been a critical source of financial aid and investment for Pakistan, especially during times of economic crisis. In recent years, Pakistan has faced severe financial difficulties, marked by a balance of payments crisis, high inflation, and dwindling foreign exchange reserves. Saudi Arabia has extended financial assistance to Pakistan on multiple occasions, helping the country stave off default. In 2022, Saudi Arabia provided $3 billion in direct financial support to Pakistan’s central bank and an additional $1.2 billion in deferred oil payments, which provided much-needed relief. This ongoing economic support underscores the importance of Saudi financial aid in stabilizing Pakistan’s economy during periods of acute distress.
Trade between Pakistan and Saudi Arabia has traditionally been skewed in favor of the latter. Pakistan’s exports to Saudi Arabia have remained relatively low, primarily consisting of textiles, rice, fruits, and vegetables. In contrast, Saudi exports to Pakistan, largely dominated by oil and petroleum products, are significantly higher. According to official trade data, Pakistan’s exports to Saudi Arabia stood at approximately $500 million in 2023, while Saudi exports to Pakistan were valued at over $4 billion, with crude oil accounting for the majority. The trade imbalance highlights the need for Pakistan to diversify its exports and enhance trade relations with Saudi Arabia beyond energy imports.
While the $2.2 billion worth of MoUs signed between the two countries indicates strong intent, a Memorandum of Understanding is typically a non-binding agreement. It signals the willingness of both parties to engage in further negotiations but does not guarantee that the proposed projects or investments will materialize. Many MoUs often remain on paper due to a lack of follow-up, changes in political or economic priorities, or unresolved issues around financing and implementation. In Pakistan’s case, several high-profile MoUs have been signed with foreign countries in the past, but only a fraction of them have been converted into actual investments. For instance, in 2019, Pakistan signed MoUs worth $20 billion with Saudi Arabia, including plans for an oil refinery in Gwadar. However, many of these projects have faced delays and have yet to be fully realized.
For MoUs to translate into real investment, several factors are critical. Firstly, both governments need to demonstrate political commitment and provide the necessary regulatory support to ensure that projects are viable. Secondly, investors often require assurances of legal protection and a stable business environment to safeguard their capital. Thirdly, financial arrangements need to be made, including securing funding from banks, private investors, or international financial institutions. In Pakistan’s case, frequent changes in political leadership and economic instability have often slowed down the process of turning MoUs into functional investments. The success of the current $2.2 billion agreements will largely depend on Pakistan’s ability to create an investor-friendly environment and follow through on its commitments.
Pak-Saudi diplomatic relations have historically been strong, underpinned by shared religious and cultural ties. Saudi Arabia has been a key strategic partner for Pakistan, providing financial assistance, energy supplies, and employment opportunities for millions of Pakistani workers. Saudi Arabia is also home to the largest Pakistani diaspora in the world, sending billions of dollars in remittances back to Pakistan each year. Over the decades, Saudi Arabia has played a significant role in supporting Pakistan’s economic stability, especially during times of financial crisis. The relationship has extended to security cooperation as well, with Pakistan providing military training and personnel to Saudi Arabia.
However, Pakistan’s ties with Saudi Arabia are not without competition. In recent years, Saudi Arabia has expanded its diplomatic and economic relations with India, another key player in the region. Saudi-India relations have grown significantly, with Saudi investments in India’s energy sector being a major highlight. One of the most notable developments is Saudi Aramco’s plan to invest $15 billion in India’s Reliance Industries to acquire a 20 percent stake in its oil-to-chemicals business. This investment is part of Saudi Arabia’s broader strategy to diversify its economy and expand its influence in global energy markets. Additionally, Saudi Arabia has expressed interest in setting up a massive oil refinery in India, with a capacity of 1.2 million barrels per day, which would make it one of the largest refineries in the world.
Saudi Arabia and India have also strengthened their cooperation in sectors such as information technology, infrastructure, and tourism. Bilateral trade between the two countries reached $42.86 billion in 2021-2022, making Saudi Arabia one of India’s largest trading partners. While Saudi Arabia’s deepening ties with India do not necessarily come at the expense of its relationship with Pakistan, they do indicate a shift in Saudi Arabia’s broader geopolitical strategy. By diversifying its economic partnerships, Saudi Arabia is positioning itself as a key player in the South Asian region, with both Pakistan and India vying for stronger ties with the oil-rich kingdom.
For Pakistan, this growing Saudi-India relationship poses both opportunities and challenges. While Pakistan continues to rely on Saudi financial assistance and energy supplies, it must also recognize the need to enhance its own economic and diplomatic engagement with Saudi Arabia to avoid being sidelined. The recent MoUs, if properly implemented, could strengthen Pakistan’s position in its relationship with Saudi Arabia, but this will require careful planning and sustained efforts to ensure that both countries benefit from the agreements.
Past experiences with unfulfilled MoUs should serve as a cautionary tale, emphasizing the need for follow-up and action. As Saudi Arabia continues to expand its economic ties with India, Pakistan must remain proactive in strengthening its own diplomatic and economic relations with the kingdom to ensure that it remains a key partner in Saudi Arabia’s regional strategy.
The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance.
