Pakistan seeks $350 million in loans from UAE banks

Lawmakers in Islamabad have reportedly engaged in discussions with commercial banks from the United Arab Emirates to request loans totalling $350 million. According to reports, the federal government requires these loans to meet external financing needs.

Finance Minister Muhammad Aurangzeb has been holding talks with the UAE’s commercial banks in efforts to resume their lending to Pakistan. Analysts believe that the loan package may be finalised soon, providing the economy with some fiscal breathing room.

In the first nine months of fiscal year (FY) 2024-25, foreign creditors provided Islamabad with approximately $504 million, with a number of the lenders based in the UAE. This has reportedly subsided fears foreign commercial banks had and kept them away from providing Pakistan with loans.

Lately, Pakistan has greatly improved its banking outlook along with most of its macroeconomic indicators. The Finance Minister outlined Pakistan’s accomplishment of meeting quantitative targets set by the International Monetary Fund (IMF) while highlighting how the renowned credit rating agency, Fitch, improved Pakistan’s credit rating.

Aside from Fitch, another credit rating agency, Moody's, also upgraded Pakistan's rating, reflecting rising market confidence in the country’s ability to pay back its liabilities. Commercial banks prefer lending to countries with a low risk of default as it is a safer option with steady returns on issued debt.

The Ministry of Finance has revealed that it engaged with three UAE-based banks, namely Abu Dhabi Islamic Bank, Ajman Bank and Sharjah Islamic Bank. As per reports, these meetings were held virtually and revolved around the aforementioned banks’ support for Islamabad’s fiscal and developmental goals.

The finance minister was at the helm of the discussions and even engaged with members of a team from Standard Chartered Bank. Reports suggest that he expressed gratitude to both Dubai Islamic Bank and Standard Charte­red Bank for identifying Ajman and Sharjah Islamic Banks as potential lenders.

Reports indicate that the Asian Develop­ment Bank (ADB) is willing to back the loans totalling $350 million with its guarantees, greatly reducing the risk of the UAE’s banks lending to Pakistan. In the event that Pakistan defaults on these specific loans, ADB may have to repay the banks with its own resources. 

As per reports, the Finance Minister outlined the government's commitment to long-term reforms, including active privatisation efforts and rightsizing of the government.