Pakistan has drawn up a tight repayment schedule to return $3.5 billion to the UAE this month, even as rising outflows and weaker exports add pressure on its economy.
File image: Pakistan Prime Minister Shehbaz Sharif. | Photo: IANS/PMO
When the United Arab Emirates asked for its $3.5 billion back, Pakistan’s political leadership decided to repay. The government has approved a repayment schedule by the end of April, a senior cabinet minister confirmed, according to a report.
The decision comes at a time when Pakistan is already facing heavy external commitments. The country is in the middle of a $7 billion International Monetary Fund programme, exports are under pressure, and a $1.3 billion Eurobond is due on April 8. Together, total outflows this month are expected to reach around $4.8 billion.
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For years, the UAE had regularly rolled over loans to Pakistan, often on easier terms. That pattern has shifted in recent months. Loans have been extended for shorter periods, and borrowing costs have risen from around 3 per cent in 2018 to 6.5 per cent last year.
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In January, two $1 billion loans were extended for just one month at the higher rate, even as Pakistan sought a longer tenure at a lower interest. The State Bank of Pakistan had requested a two-year rollover of $2.5 billion, and Prime Minister Shehbaz Sharif had also raised the matter with the UAE leadership. However, repayment has now been formally sought.
As per officials, the ongoing US-Israel-Iran conflict may have hastened the decision to seek repayment
Officials said the government has finalised a three-part schedule to clear the dues:
These payments will be made alongside the Eurobond maturity, pushing total outflows close to $4.8 billion for the month. Discussions are continuing on whether part of the amount can be converted into an investment, but the repayment process is moving ahead.
The payments are expected to be managed through Pakistan’s foreign exchange reserves, which stand at about $16.4 billion. The government has said reserves remain at comfortable levels, noting that the country has previously operated with far lower import cover.
However, pressures remain. Exports have declined by 8 per cent in the first nine months of the current fiscal year, affecting plans to boost foreign exchange earnings. Foreign investment has also weakened, and an attempt to raise funds through a Panda Bond earlier this year did not go through.
Under the IMF programme, Saudi Arabia, the UAE, and China had committed to maintaining a combined $12.5 billion in deposits with Pakistan’s central bank until September 2027. The current development raises questions about how these arrangements may evolve in the coming months.
Interest costs have also moved up. Loans that were extended at around 3 per cent earlier now carry rates of about 6.5 per cent, with Pakistan seeking a reduction in line with easing global conditions.
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