ISLAMABAD:
Pakistan has decided to repay the United Arab Emirates (UAE)’s $3.5 billion debt this month, a senior cabinet minister said in a briefing on Friday, ending speculation over the fate of debt that Abu Dhabi had started rolling over just a month ago.
Political leaders have decided to pay off all of the UAE’s debt, one of the senior cabinet ministers said while briefing presenters in his office.
Of the $3.5 billion, a loan of $450 million for one year had been taken in 1996-97, which Pakistan would repay next week after 30 years, according to another government official.
While the cabinet minister said the money was being returned, some senior government officials said discussions were underway to convert part of the amount into investment.
It is believed that while the UAE was previously reluctant to refinance the debt, the war between the United States, Israel and Iran accelerated the entire process, which has now culminated in preparations to repay the debt.
The Express PAkGazette had reported in January that the UAE renewed two loans of $1 billion each, which matured on January 16 and 22 for just one month. Pakistan had sought a two-year extension and an interest rate of around 3%. But the UAE renewed it on the old conditions of 6.5% interest rate.
Under the IMF’s $7 billion program, the UAE, Saudi Arabia and China had committed to keeping their combined $12.5 billion in cash deposits in the SBP at least until the program expires in September next year.
In December, State Bank of Pakistan Governor Jameel Ahmad had asked the UAE government to roll over $2.5 billion of debt for two years and cut the interest rate by almost half.
Later, Prime Minister Shehbaz Sharif also asked the UAE President to extend the repayment deadline. The prime minister said the UAE had agreed to refinance the debt, but did not provide further details.
The UAE provided $2 billion to Pakistan in 2018 for one year, but Pakistan was unable to repay the amount and has since requested annual refinancing. The UAE subsequently provided another $1 billion loan in 2023 to help Pakistan meet external financing requirements for an IMF bailout.
Early last month, SBP Governor Jameel Ahmad said that the UAE was not demanding repayment of the $2 billion loan but had instead transferred it to a monthly renewal. But it has now emerged that the UAE has asked Pakistan to return its money, which had originally been granted for only one year.
In December, Governor Ahmad had asked the UAE government to roll over $2.5 billion in debt over two years and cut the interest rate by almost half. Later, Prime Minister Shehbaz Sharif also asked the UAE President to extend the repayment deadline. The prime minister said the UAE had agreed to refinance the debt, but did not provide further details.
Pakistani authorities said the government would return $450 million on April 11, $2 billion on April 17 and another $1 billion on April 23. They said they were making arrangements to pay the debt.
However, there was a possibility that the money could be paid from the $16.4 billion foreign exchange reserves held by the central bank.
In total, Pakistan will repay $4.8 billion of debt in April, including $1.3 billion in Eurobonds on April 8.
The minister said official foreign exchange reserves remain at comfortable levels and that in the past the country survived with reserves as low as a week’s worth of imports.
Addressing major exporters and industrialists earlier this year, Prime Minister Shehbaz Sharif acknowledged that central bank reserves had increased, but said this was largely due to $12 billion in cash deposits from friendly countries.
He also said that when he traveled the world seeking financial help he felt ashamed. “Our self-respect suffers a lot when we go into debt,” he said, adding that such countries sometimes ask for concessions in return and “we can’t say many things they want us to do.”
The government is struggling to boost exports, which have fallen 8% during the first nine months of the current fiscal year.
The government is also struggling to formulate a viable plan to double exports to $32 billion over the next three years to exit the IMF program. Foreign investment has failed to recover despite efforts and instead fell sharply during this fiscal year.
In 2018, the UAE charged a 3% interest rate on the debt, but last year they increased it to 6.5%. Pakistan has asked the United Arab Emirates to reduce the rate to around 3%, citing improvements in its credit rating and lower global interest rates.
The government’s plan to issue $250 million worth of Panda bonds in January this year has hit a roadblock due to mismanagement of the entire issuance.
