Pakistan has scheduled USD 3.5 billion loan repayments to the UAE in April, even as reserves rely on allied deposits and investment inflows remain weak amid IMF pressure.
Pakistan has decided to clear its entire USD 3.5 billion debt to the United Arab Emirates (UAE) by the end of April after the Gulf state recently asked for the immediate return of the funds, PTI reported. This was confirmed by a senior Pakistani cabinet minister.
The decision, taken by the political leadership, was conveyed to a group of reporters, with the minister confirming that the full amount would be repaid. However, parallel discussions are also underway on the possibility of converting part of the outstanding sum into investment, The Express Tribune quoted senior officials as saying.
The repayment schedule has been finalised: USD 450 million will be returned on April 11, followed by USD 2 billion on April 17 and another USD 1 billion on April 23. Officials said arrangements are being made, with a likelihood that the funds could be drawn from the central bank’s USD 16.4 billion foreign exchange reserves.
Of the total amount, USD 450 million traces back to a one-year loan taken in 1996-97, which is now set to be cleared after nearly three decades.
The move came amid shifting dynamics around the debt. Earlier, the UAE had shown reluctance to extend long-term rollovers, opting instead for short-term extensions. In January, two USD 1 billion loans maturing on January 16 and 22 were rolled over for just one month at an interest rate of 6.5 per cent, despite Pakistan seeking a two-year extension at roughly 3 per cent interest rate.
Officials believe that the ongoing US-Israel-Iran conflict accelerated the decision-making process, culminating in the current repayment plan.
Under the USD 7 billion International Monetary Fund (IMF) programme, the UAE, Saudi Arabia and China had committed to maintaining a combined USD 12.5 billion in deposits with the State Bank of Pakistan (SBP) until the programme concludes in September 2027.
Efforts to secure relief had continued in recent months. In December, SBP Governor Jameel Ahmad requested a two-year rollover of USD 2.5 billion in UAE debt at a reduced interest rate. Prime Minister Shehbaz Sharif also raised the matter with the UAE President, stating publicly that a rollover had been agreed, though without specifics.
The UAE’s financial support to Pakistan has evolved over time. A USD 2 billion loan extended in 2018 for one year has been repeatedly rolled over, while an additional USD 1 billion was provided in 2023 to help Islamabad meet IMF-related external financing needs. As recently as early last month, Ahmad had indicated that the USD 2 billion facility was not being recalled but shifted to monthly rollovers. It has now emerged that repayment has been formally sought.
In total, Pakistan is set to repay USD 4.8 billion in April, including a USD 1.3 billion Eurobond maturing on April 8, The Express Tribute reported.
Despite the outflows, the cabinet minister maintained that foreign exchange reserves remain at ‘comfortable’ levels, noting that the country has previously managed with reserves covering just one week of imports.
Earlier this year, PM Shehbaz Sharif acknowledged that reserve levels had improved, but largely due to USD 12 billion in deposits from friendly countries. Reflecting on Pakistan’s reliance on external support, he admitted feeling ’embarrassed’ while seeking financial assistance abroad, saying such dependence often comes with expectations that limit the country’s room for manoeuvre.
At the same time, economic pressures persist. Exports have declined by 8 per cent during the first nine months of the current fiscal year, complicating the government’s plan to double outbound shipments from USD 32 billion within three years to exit the IMF programme. Foreign investment has also failed to gain momentum and has, in fact, dropped sharply this year.
On borrowing costs, the UAE had initially extended loans at 3 per cent interest in 2018, but raised the rate to 6.5 per cent last year. Pakistan has been pushing for a reduction back to around 3 per cent, citing improved credit ratings and easing global interest rates.
Meanwhile, plans to raise USD 250 million through a Panda Bond issuance in January have run into trouble, with officials attributing the setback to mismanagement of the process.
