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Islamabad: Pakistan Prime Minister Yusuf Raza Gilani's trip to Saudi Arabia this weekend to seek deferred oil payments at a time when Islamabad is struggling to rein in a yawning trade and fiscal deficit, sends a mixed message across to the country's equity investors.
If there is good news by Monday when Gilani prepares to return home, sentiment in places like the Karachi Stock Exchange (KSE) would obviously receive a significant boost.
Last year, Pakistan's oil import bill rose by over 40 per cent compared with the previous year. In the past year, the current account deficit has surged to at least 7.5 per cent of gross domestic product while the fiscal deficit was positioned to surge to nine per cent of GDP.
The government says that it expects the fiscal deficit to fall to around 6.5 per cent of GDP due to the expenditure cuts it has taken in the past few months.
Pakistan's policymakers are worried about the impact of high oil prices on the country's economy. The newly elected government is left with no choice but to reach out desperately to Saudi Arabia.
In 1998, after the sanctions following Pakistan's maiden nuclear tests, Saudi Arabia came offered a facility to first defer oil payments for three years and then write off the dues.
There are three vital elements needed to develop this valuable partnership.
First, Gilani's government must seek investments from Saudi entrepreneurs. Attracting Saudi investors must be central to Pakistan's future economic and investment policy.
Second, securing deferred oil payments from Saudi Arabia should not be considered the ultimate end objective as Pakistan ventures to improve its economic outlook.
Exporting more Pakistani workers to Saudi Arabia could work to Pakistan's long term advantage in a number of ways, notably remittances.
Finally, Saudi Arabia has reportedly begun searching around for opportunities to invest in the farming sector of its neighbours such as in the Sudan. In Pakistan too, there are plenty of opportunities in the farm sector where Saudi investments would not only bring generous returns, but secure food supplies for the kingdom.
Gilani's trip has the potential to be turned into a long-term success story, though it depends on how Pakistan carries forward its policies towards promoting its relations with Saudi Arabia.
- The writer is a journalist based in Pakistan.
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