Pakistan could face a balance of payments issue after clearing the next Saudi installment in January.

Pakistan's Prime Minister Imran Khan and Saudi Crown Prince Mohammed Bin Salman during a welcome ceremony in Islamabad, February 18, 2019
Pakistan's Prime Minister Imran Khan and Saudi Crown Prince Mohammed Bin Salman during a welcome ceremony in Islamabad, February 18, 2019 (AFP)

Pakistan has returned $1 billion to Saudi Arabia as a second installment of a $3 billion soft loan, as Islamabad reaches out to Beijing for a commercial loan to help it offset pressure to repay another $1 billion to Riyadh next month, officials said.

Analysts say it is unusual for Riyadh to press for the return of money. But relations have been strained lately between Pakistan and Saudi Arabia, usually historically close friends.

With the $1 billion flowing out, Pakistan, which has $13.3 billion in central bank foreign reserves, could face a balance of payments issue after clearing the next Saudi installment.

"China has come to our rescue," a Foreign Ministry official told Reuters.

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China fills the gap

A finance ministry official said Pakistan's central bank was already in talks with Chinese commercial banks.

"We've sent $1 billion to Saudi Arabia," he said. Another $1 billion will be repaid to Riyadh next month, he said. Islamabad had returned $1 billion in July.

Although a $1.2 billion surplus in its current account balance and a record $11.77 billion in remittances in the past five months have helped support the Pakistani economy, having to return the Saudi money is still a setback.

Saudi Arabia gave Pakistan a $3 billion loan and a $3.2 billion oil credit facility in late 2018. After Islamabad sought Riyadh's support over human rights violations by India in the disputed territory of Kashmir, Saudi Arabia has pushed Pakistan to repay the loan.

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US opposes increasing China influence

Pakistani Army Chief General Qamar Javed Bajwa, who visited Riyadh in August to ease the tensions, met the Saudi ambassador in Islamabad on Tuesday.

The People's Bank of China did not respond to a Reuters request for comment, and Riyadh didn't issue any details.

Washington has expressed concerns about Pakistan and other developing countries getting stuck in a Chinese debt trap. It has criticised Beijing's China-Pakistan Economic Corridor plans, involving more than $60 billion in pledged support for infrastructure projects in Pakistan.

Source: Reuters