Pakistan has decided to return $3.5 billion in debt to the United Arab Emirates (UAE) this month, a senior cabinet minister revealed during a background briefing with television news anchors.
The minister stated that the political leadership had taken the decision to repay the full amount. Another official shared that out of the total, a $450 million loan taken in 1996-97 for one year will be cleared next week, nearly three decades after it was acquired.
While the minister indicated that repayment arrangements were underway, senior officials noted that discussions were also ongoing to convert part of the amount into investment.
Officials suggested that the pace of developments was influenced by regional tensions, including the US (United States)-Israel-Iran conflict, which affected the UAE’s earlier stance on rolling over the debt.
Earlier this year, the UAE had rolled over two loans of $1 billion each for one month after their maturity in January. Pakistan had requested a two-year extension at an interest rate of around three percent, but the rollover was granted at an existing rate of 6.5 percent.
Under the $7 billion International Monetary Fund (IMF) programme, the UAE, Saudi Arabia and China had committed to maintaining a combined $12.5 billion in deposits with the State Bank of Pakistan (SBP) until the programme concludes next year.
State Bank Governor Jameel Ahmad had approached UAE authorities in December to extend the repayment period of $2.5 billion and reduce the interest rate. Prime Minister (PM) Shehbaz Sharif had also raised the matter with the UAE president, stating that the Emirates had agreed to a rollover without sharing further details.
The UAE had initially provided $2 billion in 2018 for one year, which has since been rolled over annually. A further $1 billion loan was extended in 2023 to support Pakistan’s external financing needs under the IMF arrangement.
Last month, the central bank governor indicated that the UAE was not seeking immediate repayment of the $2 billion and had moved to a monthly rollover. However, officials now say the UAE has asked Pakistan to return the funds, which were originally extended for one year.
Authorities outlined a repayment schedule, with $450 million due on April 11, $2 billion on April 17, and $1 billion on April 23. Officials said arrangements were being finalised, with the possibility of using part of the central bank’s $16.4 billion foreign exchange reserves.
In total, Pakistan is set to repay $4.8 billion in April, including a $1.3 billion Eurobond maturing on April 8.
The minister maintained that foreign exchange reserves remained at manageable levels, noting that the country had previously operated with reserves covering only one week of imports.
Earlier this year, while addressing exporters and industrialists, PM Shehbaz Sharif had said that reserves had increased largely due to $12 billion in deposits from allied countries. He said, “Our self-respect suffers greatly when we take on debt,” adding that borrowing often comes with conditions.
Pakistan is also working on a plan to raise exports from $32 billion over the next three years as part of its strategy to exit the IMF programme.
The UAE had charged an interest rate of three percent on earlier loans, which was increased to 6.5 percent last year. Pakistan has requested a reduction to around three percent, citing changes in global interest rates and its improved credit rating.
