Pakistan on Saturday repaid a $2 billion debt to the United Arab Emirates after seven years, further reducing its dependence on the Gulf nation whose support allowed Islamabad to sail through two economic crises of 2018 and 2023.
Pakistan returned the $2b UAE debt by taking a new debt from Saudi Arabia, bringing the total repayments to Abu Dhabi this week to $2.5b, according to government officials.
The finance ministry had not factored in these repayments till the end of last month and had assured the International Monetary Fund (IMF) that its external financing requirements were fully met on the back of rollovers by China, Saudi Arabia and the UAE.
The Pakistan Tehreek-e-Insaf government took the $2b loan in 2018 to sustain foreign exchange reserves that were on a downward trajectory due to delays in reaching a deal with the IMF. Another $450m UAE loan that Islamabad paid early this week was taken in 1996-97 for a year, which Pakistan returned after 30 years.
There will not be any negative impact on the foreign exchange reserves that are hovering around $15b, as the debt is being repaid by contracting new debt.
Finance ministry officials said that Pakistan would pay the remaining $1b UAE debt on Thursday. This would also be settled by availing another $1b Saudi loan that the kingdom will disburse next week.
Saudi Arabia has also extended the existing $5b cash deposit-based debt for two years, the officials said. Pakistan was earlier paying 4% interest rate on Saudi loans, and it is not clear whether the extension and the new $3b debt were given at the existing or the new rates.
The UAE’s decision to demand its money back had created a $3.5b hole. Finance ministry officials said that the government had not factored in the UAE repayment, and it last month assured the IMF that “based on existing financing commitments from bilateral and multilateral partners, the [IMF] programme is fully financed for the next 12 months”.
It had further assured the IMF in March that, as committed at the outset of the Extended Fund Facility, Pakistan’s bilateral partners will also continue rolling over short-term claims, including loans, swaps and deposits, for the duration of the programme.
Under the $7b IMF programme, the UAE, Saudi Arabia and China had committed to maintaining their combined $12.5b in cash deposits with the central bank at least until the programme expires in September next year.