Pakistan to Repay $3.5 Billion UAE Debt This Month Amid Financing Pressures
By Shahzad Paracha :
Pakistan has decided to repay $3.5 billion in loans owed to the United Arab Emirates this month, a senior cabinet minister said on Friday, ending weeks of uncertainty after Abu Dhabi began rolling over the debt only on a short-term basis.
Speaking during a background briefing with media representatives, the minister said the country’s political leadership had approved the repayment of the full amount. The decision comes as Pakistan faces growing financial obligations and limited external financing options.
Officials said part of the debt dates back decades. Around $450 million was originally borrowed in 1996–97 for a one-year period but remained unpaid for nearly 30 years. According to government sources, Pakistan plans to settle that portion next week.
However, some senior officials indicated that discussions were still underway about potentially converting a portion of the outstanding amount into investment rather than immediate repayment.
Earlier this year, the UAE had rolled over two loans of $1 billion each that matured in mid-January but extended them only for one month instead of the two-year rollover requested by Pakistan. Islamabad had also sought a reduction in the interest rate to around three per cent, but the loans were extended at the existing rate of 6.5 per cent.
Under Pakistan’s $7 billion programme with the International Monetary Fund, key partners including the UAE, Saudi Arabia and China had committed to maintaining combined deposits of $12.5 billion with the State Bank of Pakistan until the programme concludes in September next year.
Despite these arrangements, the UAE appears to have requested repayment of the funds that were originally provided as short-term support. Government officials said Pakistan would repay $450 million on April 11, followed by $2 billion on April 17 and another $1 billion on April 23.
In total, the country is expected to repay about $4.8 billion in external debt during April, including a $1.3 billion Eurobond payment due on April 8.
Officials said the government is arranging funds for the repayments, potentially using part of the central bank’s foreign exchange reserves, which currently stand at about $16.4 billion.
The cabinet minister said Pakistan’s reserves remained at a manageable level and noted that the country had previously operated with reserves covering only a week’s worth of imports.
Prime Minister Shehbaz Sharif has acknowledged in recent months that a significant portion of Pakistan’s reserves consists of deposits from friendly countries. Speaking earlier this year to exporters and industrialists, he said seeking financial support from abroad had often been uncomfortable and could affect the country’s sense of economic independence.
Pakistan is simultaneously facing broader economic challenges, including declining exports and limited foreign investment. Exports have fallen by about eight per cent during the first nine months of the current fiscal year, complicating the government’s plans to double overseas sales from $32 billion within the next three years in order to reduce reliance on IMF support.
Foreign investment has also slowed during the current fiscal year despite government efforts to attract capital.
The UAE initially provided Pakistan with $2 billion in financial support in 2018 for a one-year period. Unable to repay the loan at maturity, Islamabad has since sought annual rollovers. Abu Dhabi later extended an additional $1 billion loan in 2023 to help Pakistan secure financing required under its IMF programme.
Pakistan has been urging the UAE to reduce the interest rate on these loans to around three per cent, citing improvements in its credit rating and changes in global borrowing costs.
Meanwhile, the government’s plan to raise $250 million through a Panda Bond issuance earlier this year has stalled, officials said, adding to the country’s financing challenges.
About Author
