Published on: September 26, 2025 1:52 AM

Pakistan’s “Strategic Mutual Defence Agreement” with Saudi Arabia is more than a security story. It is a balance-of-payments story, a remittance story, a sovereign-risk story-and, potentially, a mining and energy story. If Islamabad plays it right, the pact can be monetised into predictable, programmatic inflows that de-risk the next few years of its IMF program. If it plays it wrong, Pakistan could swap short-term liquidity for long-term dependency and higher geopolitical risk premia.

The facts first. On 17 September 2025, Pakistan and Saudi Arabia signed a mutual defence pact that commits each side to treat aggression against one as aggression against both-language that analysts immediately likened to collective-defence clauses elsewhere. Public briefings by Pakistani officials stress the agreement is “purely defensive” and does not place nuclear weapons on the table, even as outside observers read it as an “extended deterrence” umbrella for the Kingdom. What is indisputable is that the pact formalises decades of security ties (including Pakistan’s longstanding training presence in the Kingdom) and lands at a moment of regional insecurity and recalibration.Those geopolitics matter because they impact the cash flows that Pakistan relies on.

The defence pact tilts the probability toward future rollovers-but prudence is to plan for amortisation.

There are immediate.First, Saudi deposits and rollovers. Riyadh’s $3 billion deposit parked at the State Bank-a buffer that Pakistan has repeatedly relied on since 2021-was rolled for another year in December 2024. On paper, that looks like a simple maturity extension; in practice, it serves as a standing backstop that compresses Pakistan’s near-term default risk and supports the rupee by stabilising usable reserves. The new pact increases the political incentive to continue such rollovers. But this is still debt, not equity: it reduces near-term outflows while bunching obligations later.Second, the $1.2 billion oil-payment deferral facility was agreed in February 2025. This is textbook supplier credit: roughly $100 million a month of FX outflows delayed by a year, directly smoothing Pakistan’s current-account cash burn. In a year of expensive sovereign funding, the opportunity cost saved on those deferred dollars-especially when T-bill and PIB yields are elevated-has real fiscal value. The flip side is a ballooning bill next year unless the facility is rolled again or refinanced with longer-tenor energy financing.

The defence pact tilts the probability toward future........

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