Pakistan will clear its entire USD 3.5 billion debt to the United Arab Emirates (UAE) by the end of April, following a request from the Gulf state for an immediate repayment.
According to media reports, a senior Pakistani cabinet minister confirmed the development, stating that the political leadership had taken the decision and that the full amount would be repaid.
At the same time, parallel discussions are underway regarding the possibility of converting part of the outstanding amount into investment, according to senior officials quoted by The Express Tribune.
Of the total debt, USD 450 million dates back to a one-year loan taken in 1996–97, which is now set to be cleared after nearly three decades.
Shift in UAE’s Lending Approach
The move comes amid evolving dynamics in Pakistan-UAE financial ties. The UAE had recently shown reluctance to extend long-term rollovers, opting instead for short-term extensions. In January, two USD 1 billion loans maturing on January 16 and 22 were rolled over for just one month at an interest rate of 6.5 per cent, despite Pakistan seeking a two-year extension at roughly 3 per cent.
As per reports, officials believe that the ongoing US-Israel-Iran conflict accelerated decision-making, ultimately leading to the current repayment plan. Under the USD 7 billion International Monetary Fund (IMF) programme, the UAE, Saudi Arabia and China had committed to maintaining a combined USD 12.5 billion in deposits with the State Bank of Pakistan (SBP) until the programme concludes in September 2027.
Efforts to secure relief had continued in recent months. In December, SBP Governor Jameel Ahmad requested a two-year rollover of USD 2.5 billion in UAE debt at a reduced interest rate. Prime Minister Shehbaz Sharif also raised the matter with the UAE President, stating publicly that a rollover had been agreed, though without providing specifics.
History of UAE Financial Support
The UAE’s financial assistance to Pakistan has evolved over time. A USD 2 billion loan extended in 2018 for one year has been repeatedly rolled over, while an additional USD 1 billion was provided in 2023 to help Islamabad meet IMF-related external financing requirements.
As recently as early last month, Jameel Ahmad had indicated that the USD 2 billion facility was not being recalled but had shifted to monthly rollovers. It has now emerged that repayment has been formally sought.
Heavy Repayment Burden in April
In total, Pakistan is set to repay USD 4.8 billion in April, including a USD 1.3 billion Eurobond maturing on April 8, The Express Tribune reported. Despite these outflows, the cabinet minister maintained that foreign exchange reserves remain at “comfortable” levels, noting that the country has previously managed with reserves covering just one week of imports.
Earlier this year, Prime Minister Shehbaz Sharif acknowledged that reserve levels had improved, but largely due to USD 12 billion in deposits from friendly countries.
Reflecting on Pakistan’s reliance on external support, he admitted feeling “embarrassed” while seeking financial assistance abroad, saying such dependence often comes with expectations that limit the country’s room for manoeuvre.
Economic Pressures Persist
Economic challenges continue to weigh on the country. Exports have declined by 8 per cent during the first nine months of the current fiscal year, complicating the government’s plan to double outbound shipments from USD 32 billion within three years to exit the IMF programme. Foreign investment has also dropped sharply this year.
On borrowing costs, the UAE had initially extended loans at 3 per cent interest in 2018 but raised the rate to 6.5 per cent last year. Pakistan has been pushing for a reduction back to around 3 per cent, citing improved credit ratings and easing global interest rates.
Meanwhile, plans to raise USD 250 million through a Panda Bond issuance in January have run into difficulties, with officials attributing the setback to mismanagement of the process.
Pakistan’s Wider External Debt Exposure
Beyond the UAE, Pakistan remains heavily indebted to a small group of key bilateral and multilateral creditors, with China, Saudi Arabia and international financial institutions forming the core of its external liabilities.
According to World Bank and government-linked data cited in media reports, Pakistan’s total external debt and liabilities stand at roughly USD 130–138 billion, with China emerging as the largest bilateral lender, accounting for about USD 28–29 billion (around 22 per cent of the total).
Saudi Arabia is another major creditor, with exposure estimated at around USD 5 billion, while the UAE has historically maintained deposits and loans worth about USD 3 billion.
In addition to these bilateral partners, a significant portion of Pakistan’s debt is owed to multilateral institutions such as the International Monetary Fund (IMF), World Bank and Asian Development Bank, as well as through international bonds.
Reports indicate that nearly 92 per cent of Pakistan’s external debt is concentrated across a few major sources, including bilateral lenders like China and Saudi Arabia, multilateral agencies, and global capital markets, highlighting the country’s continued reliance on a narrow group of external financiers.