There is a Saudi trade deal on the cards. Generally, a trade agreement requires an analysis of potential of imports, exports, current tariff regime and trade agreements with countries offering products that compete with Pakistan’s top exports. However, in Saudi Arabia’s case it is about one commodity alone: oil.
A trade agreement with Saudi would revolve more around its impact on Pakistan’s oil bill than on Pakistan’s potential of exports. Oil constitutes about 20 percent of Pakistan’s imports of which Saudi Arabia’s share was less than 20 percent in the last fiscal year and 23 percent in the current fiscal year from July to October.
A deferred oil payment deal would reduce pressure on some of Pakistan’s financial woes. Historically, Saudi Arabia has agreed to defer oil payments several times when Pakistan’s foreign exchange reserves have raised red flags. In a recent interview that Rana Afzal had with BR Research he indicated that it would be great if a deferred payment deal for oil could be negotiated with Saudi Arabia since the current investment climate has driven up dollar demand.
On the export side, yes, there is some potential since Saudi Arabia prefers to export oil and import nearly everything else. Last fiscal year, Pakistan’s exports were $359 million comprising mostly of food items such as meat, fish and rice. There is potential for increase in exports of leather goods, apparel, and surgical goods for which the Saudi market is virtually untapped by Pakistani exporters.
However, Saudi Arabia is a rich country with a population of about Karachi and Lahore combined. Not a lot of people but a lot of money has created an appetite for expensive value-added products such as cars and jewelry that are not Pakistan’s forte. At best the increase in Pakistan’s exports would be at hundreds of millions of dollars. However, if Pakistan could negotiate a better deal for oil that could lower its import bill that would be a significant win indeed.
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