Islamabad has so far paid $2 billion to Riyadh after Saudi Arabia insisted on the repayment of the loan earlier this year in the wake of bilateral ties being strained over Pakistan’s efforts to forge an alternative front of Muslim nations through an outreach to Turkey and Malaysia

Pakistan has been paying back a $3-billion loan extended by Saudi Arabia in 2018 using emergency financial assistance from China against the backdrop of strained ties between Islamabad and Riyadh, people familiar with developments said on Tuesday.

Islamabad has so far paid $2 billion to Riyadh after Saudi Arabia insisted on the repayment of the loan earlier this year in the wake of bilateral ties being strained over Pakistan’s efforts to forge an alternative front of Muslim nations through an outreach to Turkey and Malaysia.

The people cited above said on condition of anonymity that Pakistan plans to repay the remaining $1 billion by early next year.

“This is simply a case of putting off a major economic problem for some more time. The Saudis may have been repaid but the other loan will become due some day,” one of the people cited above said.

Earlier this month, China bailed out Pakistan by enhancing the size of a 2011 bilateral currency swap agreement by 10 billion yuan or about $1.5 billion, The Express Tribune newspaper had reported, citing sources in the finance ministry and the State Bank of Pakistan. This assistance was used to repay the Saudi loan.

China increased the currency swap arrangement instead of extending a commercial loan so that the new $1.5-billion loan wouldn’t reflect on the books of the Pakistan government or be treated as part of country’s external public debt. Pakistan has used the currency swap facility since 2011 to repay foreign debt and keep its foreign currency reserves at comfortable levels, the report said.

Saudi Arabia has also been upset by Pakistan’s criticism of the kingdom’s handling of the Kashmir issue, especially after the Indian government scrapped the special status of Jammu and Kashmir in August 2019.

For instance, the Kashmir issue wasn’t on the official agenda of a meeting of foreign ministers of the Organisation of Islamic Cooperation (OIC) held in Niger in November. After hectic lobbying by Pakistan’s foreign minister Shah Mahmood Qureshi, the meeting adopted a resolution on Kashmir that experts said was no different from hundreds of similar documents adopted by the OIC over the years that have had no impact.

The strain in Pakistan-Saudi Arabia ties is evident from the fact that Riyadh didn’t roll over the period for the $3-billion loan against the backdrop of economic difficulties created by the Covid-19 pandemic. A $3.2-billion oil credit facility extended by Saudi Arabia to Pakistan in 2018 was also suspended after a year.

“Saudis, moreover, in the past never insisted on the repayment of loans, but that did not happen this time. The message from Riyadh was clear that it wanted its money back,” the Dawn newspaper reported on Tuesday.

“The Saudi attitude, some say, stemmed from its unease over Pakistan’s foreign policy direction, especially its relations with Turkey and Iran,” the report added.

The Indian Army chief’s recent visit to the United Arab Emirates (UAE) and Saudi Arabia has also spurred efforts by Islamabad to repair ties with Riyadh. On Monday, Saudi Arabia’s envoy to Pakistan, Nawaf bin Saeed Al-Maliki, met Prime Minister Imran Khan to discuss bilateral cooperation.

“The resolve to further strengthen the strong, longstanding Pakistan-Saudi Arabia fraternal ties was reaffirmed,” Pakistan’s Foreign Office said in a statement.

A Saudi Arabian delegation, possibly led by the foreign minister, is expected to visit Pakistan before the end of the year, and this is likely to be followed by a visit to the kingdom by a delegation led by a senior Pakistani minister, the people said.