Pakistan's Debt Repayment
Pakistan has repaid a $2 billion debt to the United Arab Emirates (UAE), according to the State Bank of Pakistan (SBP), marking the latest chapter in a long history of financial cooperation between the two nations dating back to the 1970s. The repayment was confirmed by the central bank’s spokesperson on Saturday, as Pakistan navigates a challenging economic landscape where external debt rollovers have become critical to maintaining liquidity.
The $2 billion debt was kept with the central bank as a safe deposit and was provided by the UAE to support Pakistan's balance of payment, a recurring need for the country which has relied on Gulf allies for financial assistance during crises, including the 2008 global financial downturn and the 2022 floods.
Financial Pressure
The UAE had asked for the immediate return of the funds in the wake of the recent situation in West Asia following the US-Israel war on Iran, reflecting the region’s heightened geopolitical tensions that have historically influenced Gulf nations’ foreign reserve policies. Geo News reported, quoting sources, that Pakistan has been paying around 6% interest on the amount it owed to the UAE, a rate lower than the country’s average borrowing cost from international markets, which often exceeds 8%.
In the past, the UAE used to roll over the deposit on a yearly basis, a practice common among Gulf Cooperation Council (GCC) nations supporting Pakistan’s economy. However, the amount was extended first for one month and then for two months until April 17, underscoring the urgency of the repayment amid Pakistan’s broader struggle to secure $12 billion in external deposit rollovers for the current fiscal year, including $5 billion from Saudi Arabia, $4 billion from China, and $3 billion placed by the UAE.
According to official figures, Pakistan's foreign exchange reserves stood at $16.4 billion as of March 27, which officials said was sufficient to cover close to three months of imports—a threshold below the global standard of six months, highlighting the country’s vulnerability to external shocks.
Saudi Arabia's Deposit
Saudi Arabia reached an agreement with the SBP, which allows for an extension in the maturity of a $3 billion deposit with it, continuing a tradition of financial support that began in the 1990s when Riyadh provided similar assistance during Pakistan’s nuclear sanctions. The agreement was signed between the Saudi Fund for Development (SFD) and the State Bank of Pakistan (SBP). On Thursday, the SFD deposited $2 billion of the $3 billion with the State Bank of Pakistan, providing a major boost to the country’s foreign reserves, which have fluctuated dramatically in recent years, peaking at $20 billion in 2021 before declining sharply.
Report based on information from Daily Excelsior.
