Pakistan has decided to repay a $3.5 billion loan to the United Arab Emirates after the Gulf nation sought immediate settlement, marking a significant shift in financial engagement between the two countries. A senior cabinet minister confirmed the development, describing the UAE as a “brotherly country” and stressing that “national dignity could not be compromised for financial considerations”. While repayment has been confirmed, officials said discussions are ongoing to convert part of the amount into investment.
UAE Seeks Full Settlement After Short-Term Rollovers
The decision follows months of tightening financial terms from the UAE. Earlier, Islamabad had sought longer rollovers at reduced interest rates, but the UAE opted for short-term extensions instead.
In January, two $1 billion loans were rolled over for just one month at an interest rate of 6.5 percent, significantly higher than the roughly 3 percent Pakistan had requested for a longer tenure. The latest development confirms that full repayment has now been sought.
Officials believe the ongoing tensions involving Iran and the broader West Asia conflict accelerated this shift.
IMF Obligations Add Pressure
Pakistan’s external financing strategy remains tied to its commitments under a $7 billion programme with the International Monetary Fund.
As part of the arrangement, Pakistan was required to secure $12.5 billion in rollovers from key partners, including China, Saudi Arabia, and the UAE, to maintain reserves and meet financing gaps.
The UAE had previously extended $2 billion in 2018 and another $1 billion in 2023, both of which were repeatedly rolled over until now, reported The Print.
Efforts For Relief Did Not Materialise
Authorities had attempted to renegotiate terms in recent months. State Bank Governor Jameel Ahmad sought a two-year rollover of $2.5 billion at lower rates in December.
Prime Minister Shehbaz Sharif also raised the issue with UAE leadership, indicating that a rollover understanding had been reached, though details were not specified.
Despite these efforts, the UAE proceeded with its demand for repayment.
Reserves Set To Take A Hit
Pakistan’s foreign exchange reserves currently stand at about $16.3 billion. A repayment of around $3 billion is expected to reduce reserves by nearly 18 percent, weakening the country’s external buffer and import cover.
Shift In Economic Narrative
The development also reflects a change in tone from Pakistan’s leadership. While the UAE had earlier been described as a key partner, concerns over dependence on foreign loans have grown.
In a recent address, Prime Minister Sharif said “seeking foreign loans had forced Pakistan to “bow” its head and make compromises at the “cost of self-respect”.
