caught between two financing paths as negotiations stall
Caught between a stalled diplomatic arrangement and the open market's steeper demands, Pakistan finds itself navigating the narrow passage that many indebted nations know well — where sovereignty over economic choices yields to the conditions of creditors. Islamabad's pursuit of expanded Islamic Development Bank financing, after IMF concerns halted a Saudi oil subsidy deal, is less a story of failure than a portrait of constrained agency: a government hedging its options, paying a premium for flexibility, and waiting to see whether diplomacy or the market will ultimately set the terms of its energy future.
- Pakistan's bid to secure a Saudi oil subsidy — a lifeline for managing energy costs — has been frozen in place by IMF objections, leaving the country without a key financing pillar.
- With the Saudi facility on ice, Islamabad is urgently pushing the Islamic Development Bank to nearly triple its trade financing capacity, from $400 million to as much as $1.2 billion.
- The fallback comes at a steep price: syndicate financing through the ITFC could cost 9 to 10 percent all-in, far exceeding what the Saudi arrangement would have demanded.
- Saudi Arabia has left a narrow window open, hinting it may revisit the oil facility between January and February 2025 — a diplomatic thread Pakistan is careful not to cut.
- Pakistan is now running both tracks simultaneously, formally requesting IsDB expansion while keeping Riyadh engaged, betting that one path will yield before the cost of uncertainty compounds.
Pakistan finds itself at a crossroads in its effort to manage energy costs, caught between a stalled Saudi arrangement and a more expensive market alternative. Prime Minister Shehbaz Sharif made repeated visits to Riyadh hoping to secure the Saudi Oil Facility, but IMF objections brought those negotiations to a halt. Islamabad is now pivoting — carefully, and without fully closing the door on Saudi Arabia.
The backup plan centers on the Islamic Development Bank's trade finance arm, the ITFC. Pakistan is requesting a significant expansion of its existing syndicate financing facility, from $400 million to between $1 billion and $1.2 billion. The country has used this channel before, drawing $267 million in a prior arrangement that exceeded initial expectations, giving officials some confidence in the relationship.
The cost, however, is sobering. The syndicate financing is priced against the Secured Overnight Financing Rate — currently at 4.59 percent — with additional fees pushing the total borrowing cost toward 9 to 10 percent. That is a market-based rate, not a negotiated concession, and it stands in sharp contrast to what the Saudi facility would have offered.
Minister for Economic Affairs Ahad Cheema confirmed last week that both options remain live. Saudi Arabia has signaled it may reconsider the oil facility as early as January or February 2025, leaving Pakistan to hedge — pursuing the IsDB route in earnest while preserving diplomatic space with Riyadh. The outcome will carry real consequences for Pakistan's energy costs and fiscal footing well into the coming year.
Pakistan is caught between two financing paths as negotiations over a crucial oil subsidy from Saudi Arabia have stalled. Prime Minister Shehbaz Sharif has made multiple trips to the Kingdom in recent months, hoping to secure the Saudi Oil Facility—a crucial arrangement that would help the country manage its energy costs. But the International Monetary Fund raised concerns about the deal, and now Islamabad is pivoting to a backup plan while keeping diplomatic channels open with Riyadh.
The alternative being pursued is a syndicate financing arrangement through the Islamic Development Bank's trade finance arm, the International Islamic Trade Finance Corporation. Pakistan wants to expand this facility significantly, from its current $400 million capacity to somewhere between $1 billion and $1.2 billion, depending on the terms offered. The country has already tapped this source before—it received $267 million in a previous arrangement, exceeding the original $200 million expectation. Now officials are formally requesting the IsDB to substantially increase what's available.
But there's a cost to this pivot. The syndicate financing would be priced at the Secured Overnight Financing Rate, which currently sits at 4.59 percent, plus additional charges layered on top. When all fees are factored in, the total borrowing cost could reach somewhere between 9 and 10 percent—a considerably steeper rate than what the Saudi facility would have offered. The SOFR itself is calculated from actual transactions in the U.S. Treasury repurchase market, making it a market-based benchmark rather than a negotiated rate.
The timing remains uncertain. Saudi Arabia has indicated it might reconsider the oil facility sometime between January and February 2025, leaving the door open for a reversal. Pakistan's Minister for Economic Affairs, Ahad Cheema, acknowledged last week that both options remain on the table. The country is essentially hedging—pursuing the IsDB route seriously while not abandoning hope that Riyadh will ultimately agree to provide the oil subsidy that would be far more favorable than borrowing at near double-digit rates.
What makes this moment significant is what it reveals about Pakistan's financial constraints and its dependence on external support. The IMF's objection to the Saudi arrangement suggests concerns about the sustainability or transparency of the deal, forcing Islamabad to seek alternatives in the open market. Whether the IsDB financing materializes at the requested level, and whether Saudi Arabia ultimately provides the facility, will shape Pakistan's energy costs and fiscal position well into 2025.
Citas Notables
Both options are open— Minister for Economic Affairs Ahad Cheema, on whether Pakistan would pursue IsDB financing or Saudi oil facility
La Conversación del Hearth Otra perspectiva de la historia
Why did the IMF object to the Saudi oil facility in the first place?
The source doesn't spell out the specific objection, but the IMF typically worries about arrangements that mask the true cost of borrowing or create hidden fiscal liabilities. A facility from Saudi Arabia might have looked like a subsidy that wasn't transparent on the books.
So Pakistan is now borrowing at 9 to 10 percent instead. That seems worse.
It is worse, financially. But it's transparent, it's from a multilateral institution, and it doesn't trigger the same red flags. Sometimes the more expensive option is the one that keeps you in good standing with the Fund.
Has Pakistan actually secured this IsDB money yet?
Not at the full $1.2 billion. They've requested it formally, and they've had success with the facility before—they got more than they asked for last time. But there's no guarantee the bank will approve the full expansion.
What happens if Saudi Arabia says yes in January?
Then Pakistan has options. They could take the Saudi facility and reduce their reliance on the IsDB, or they could layer both. But the political and financial calculus would shift entirely.
This feels like Pakistan is in a weak position.
They are. They need oil financing, the IMF is watching, and they're negotiating with a much wealthier neighbor who can afford to move slowly. The best outcome is probably some combination of both sources, but that requires convincing multiple parties to move at once.