Saudi Arabia will provide a $240 million loan to Pakistan’s multi-purpose Mohmand dam project located northwest of the country, as both countries announced on Friday.

The hydro-complex project will “contribute to Pakistan’s energy security, increase sustainable water supply for agriculture and human consumption and improve resilience to floods.” said the Pakistani Economic Affairs Ministry in a statement. 

The Saudi Fund for Development (SFD) announced, through its state-owned news agency, that it has signed the loan agreement on Friday.

The substantial funds will supplement Pakistan’s foreign exchange reserves, which are in dire condition. It will also provide an expected 800 megawatts of electricity to the country.

The dam is co-financed by the Organization of Petroleum Exporting Countries, the Islamic Development Bank, and the Kuwait Fund for Arab Economic Development. The Economic Affairs Ministry said that the project will contribute to Pakistan’s energy security.

As part of #SFD's development efforts, its CEO, Mr. Sultan Al-Marshad, signed a development agreement in Islamabad today with the Secretary Ministry of Economic Affairs, Dr. Kazim Niaz, to finance the Mohmand Dam Hydropower Project through a $240 million soft development loan. pic.twitter.com/SwmQsMC6N8

— الصندوق السعودي للتنمية (@SaudiFund_Dev) April 7, 2023

In addition, the dam will support the agriculture sector, as it will enable the irrigation of 6,773 hectares of land, and increase the total cropping area from 1,517 hectares to 9,227 hectares in northwest Pakistan through the vast water storage it provides.

The SFD has reportedly invested $1.4 billion in Pakistan by financing 41 development projects. The Saudi state-owned fund has also provided Pakistan with $5.4 billion of oil derivatives from 2019 to 2023 to support the Pakistani economy, the Saudi statement said.

Pakistan is currently facing an economic crisis that does not allow it to utilize its energy-generating capacities to its fullest. The country has enough thermal and hydro power generators to ensure the self-sufficiency of electricity. However, the crisis has debilitated the government from supplying and maintaining its infrastructure. This has led to hours-long blackouts, especially in the summer season.

Pakistan has sought to strengthen its ties with countries to its West in the past few years. Last month, Islamabad and Tehran signed an electricity deal to increase electricity flow from Iran to Pakistan by 100 megawatts, adding up to 200 total megawatts.

Iran's President Ebrahim Raisi's government has expanded economic ties with Pakistan, as evidenced by the two nations' $2 billion annual trade.