On September 17, Pakistan and Saudi Arabia signed a strategic defence pact. While most commentary has centred on military cooperation, the more urgent question is whether this moment can also mark an economic turning point for Pakistan. Defence partnerships can stabilise borders, but economic partnerships transform nations.
For decades, our relationship with Riyadh has followed a predictable script: Saudi deposits parked at the State Bank to shore up reserves, oil-on-deferred-payment to ease import bills, and a temporary boost in confidence whenever Pakistan stumbled into a balance-of-payments crisis. These gestures were generous and they kept Pakistan afloat during difficult moments, but they were always stopgaps. They bought time rather than created resilience. This defence pact offers a chance to break that cycle and use political capital to build lasting institutions.
Saudi Arabia currently holds $5 billion in deposits with the State Bank, with $2 billion maturing in December 2025 and the rest by mid-2026. Every year, markets watch nervously to see if Riyadh will renew, with speculation shaking investor confidence and ratings. Pakistan should replace this annual cliffhanger with certainty – by negotiating three- to five-year terms or, ideally, a swap line with automatic rollover linked to IMF programme performance. That single change would end the drama of ‘will Riyadh renew’ and stabilise markets.
Likewise, the $1.2 billion oil-on-deferred-payment facility revived this year should not remain ad hoc. Institutionalise it as a standing arrangement, tied to a price band with an emergency top-up clause during commodity spikes. For a country spending a quarter of its import bill on fuel, predictability matters as much as quantum.
Energy security must be another pillar. The long-discussed Saudi-backed refinery has remained stuck at the memorandum-of-understanding stage for years. Pakistan should use this moment to lock in binding offtake agreements, storage facilities, and local-content requirements. Done right, the refinery could anchor Pakistan’s downstream industry and reduce reliance on imported volatility. Left vague, it risks becoming another unfulfilled promise.
Renewables are equally urgent. ACWA Power, a Saudi giant, already operates in Pakistan. With nearly 3GW of viable solar sites identified in national planning documents, Islamabad should push for gigawatt-scale projects and desalination plants for Karachi and Gwadar. But the deals must be auctioned competitively, with costs indexed transparently – not hidden in opaque ‘take-or-pay’ contracts that have bled the treasury and saddled the country with circular debt.
On minerals, Saudi Arabia’s Manara Minerals has shown interest in Reko Diq. This project could reshape Pakistan’s resource economy, but only if handled wisely. Any agreement must require onshore smelters and refineries, backed by export credit for downstream industries, with revenues shared transparently with provinces and local communities. Exporting raw ore alone would repeat the mistakes of the past, where Pakistan lost strategic assets on unfair terms.
Labour mobility remains Pakistan’s hidden Saudi dividend. Remittances touched $38.3 billion in FY2025, with Saudi Arabia the single largest source. Yet most of our migrants remain trapped at the lowest rung of the skills ladder – drivers, construction labourers, domestic workers. Valuable though they are, this is not a strategy for growth. Pakistan should instead use this pact to negotiate a ‘skills compact’: Saudi-financed training centres in Pakistan, mutual recognition of qualifications and portability of pensions and insurance. Migration must become a deliberate export strategy, not just a social safety valve.
The cost of sending money home is another unnecessary drain. A one-point reduction in transaction fees would free up $300 million to $400 million annually for households. Pakistan has already joined the Saudi digital payment gateway Buna, but the corridor is underutilised. The priority now is to operationalise the Raast–Buna digital link so wages flow directly into Pakistani wallets at capped fees. Piloting payroll-to-wallet schemes in Saudi megaprojects like NEOM could both improve worker welfare and channel funds more efficiently.
Trade between the two countries remains sharply lopsided: Pakistan imports about $4.5 billion, mostly oil, while exports barely cross $0.8 billion, mainly textiles, rice and meat. This imbalance is not inevitable. Even modest tariff-quota windows for rice, halal meat, pharmaceuticals and IT services could narrow the gap and generate jobs at home.
A related ask is logistics: pre-clearance for perishables at Saudi ports, dedicated cold-chain corridors and Saudi co-investment in reefer transport. If Pakistani mangoes and meat reach Riyadh with the same reliability as Australian beef, market share will follow.
The Saudi Public Investment Fund (PIF) could also be transformative. By taking anchor stakes in upcoming privatisations – distribution companies, LNG terminals, container ports – PIF could bring credibility and attract other investors. But Pakistan must meet it halfway: governance safeguards, board seats, transparent audits and clear exit options. Pairing the PIF’s long-term capital with sukuk issuances for restructuring state-owned enterprises could convert bailout money into real market depth.
What makes this moment unique is the defence pact itself. Riyadh now has a strategic stake in Pakistan’s stability that goes beyond sentiment. This changes the political equation. It gives Islamabad leverage – if it chooses to use it. But leverage is not one-sided. Saudi Arabia will not commit billions without guarantees.
Pakistan must therefore offer: treaty-level investment protections with international arbitration, transparent power-purchase agreements and competitive auctions, one-stop investor clearance under the Special Investment Facilitation Council, transparent revenue-sharing with provinces, and robust compliance in digital payments. Without such governance assurances, even Saudi capital will hesitate.
There is a temptation among successive governments to treat every Saudi package as a fiscal crutch. That would squander this moment. Bailouts buy time; compacts build capacity. Pakistan must ask not just for dollars, but for durability.
This means insisting on refinery decisions within 12 months, on solar megawatts online by 2027, on smelters at Reko Diq and on training centres for skilled workers at home. It means fixing remittance corridors so migrants keep more of their earnings, and pushing for tariff quotas that let Pakistan export more than textiles and rice.
The defence pact is political capital. It should be spent on building economic institutions, not dissipated on another round of short-term relief. Pakistan has squandered similar opportunities in the past by failing to link aid with reform. This is a chance to correct that mistake.
If Pakistan plays its cards well, the next decade of relations with Saudi Arabia could look very different: less about crisis bailouts, more about co-financed solar plants in Thar; less about one-off deposits, more about swap lines and anchor investors in capital markets; less about exporting unskilled labour, more about sending skilled professionals with pensions and insurance.
Saudi Arabia, for its part, gains a stable partner on its eastern flank, a diversified labour pool for Vision 2030 and strong returns on energy and mineral investments. Pakistan gains predictability, jobs and exports. Both gain resilience. That is the kind of partnership worth signing defence pacts for.
© 2025 SDPI. All Rights Reserved Design & Developed by NKMIS WEB Unit
