Since July 22, numerous unauthorized exchange points have been closed after the military intelligence agency summoned foreign exchange traders to address the rising dollar rate in the open market. photo: file
ISLAMABAD:
Pakistan on Saturday repaid $2 billion of UAE debt after seven years, further reducing its dependence on the Gulf nation, whose support enabled Islamabad to overcome two economic crises in 2018 and 2023.
Pakistan repaid the United Arab Emirates’ $2 billion debt by taking on new debt from Saudi Arabia, bringing total payments to Abu Dhabi this week to $2.5 billion, according to government officials.
The Finance Ministry had not taken these repayments into account until late last month and had assured the International Monetary Fund that its external financing needs were fully met thanks to refinancings from China, Saudi Arabia and the United Arab Emirates, the new details showed.
Former Prime Minister Imran Khan’s government had accepted the $2 billion loan in 2018 to sustain foreign exchange reserves that were on a downward trajectory due to a delay in reaching an agreement with the IMF. Another $450 million loan from the UAE that Islamabad repaid earlier this week had been taken in 1996-97 for a period of one year, and was repaid by Pakistan after 30 years.
There would be no negative impact on foreign exchange reserves which are around $15 billion, as the debt is being repaid by taking out new debt.
Finance Ministry officials said Pakistan would pay off the remaining $1 billion of the UAE’s debt next Thursday. This would also be resolved by leveraging another $1 billion Saudi loan. The Kingdom will disburse another tranche of loan next week.
Saudi Arabia has also extended existing cash deposit-based debt of $5 billion by two years, officials said. Pakistan previously paid a 4% interest rate on Saudi loans and it is unclear whether the extension and the new $3 billion debt are provided at existing or new rates.
The United Arab Emirates’ decision to demand its money back had created a $3.5 billion hole. Finance Ministry officials said the government had not taken into account the UAE repayment and last month assured the IMF that “based on existing financial commitments from bilateral and multilateral partners, the (IMF) program is fully funded for the next 12 months.”
Furthermore, it had assured the IMF in March that, as committed at the start of the Extended Fund Facility, Pakistan’s bilateral partners will also continue to roll over their short-term credit, including loans, swaps and deposits, for the duration of the programme.
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.
The Express PAkGazette had reported in January that the United Arab Emirates transferred more than $2 billion over a 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.
In December, State Bank of Pakistan Governor Jameel Ahmad asked the UAE government to roll over the 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 Economist, a prestigious London-based publication, wrote on Thursday that although Pakistan’s economic reserves are thin, its diplomatic prowess will help it overcome the latest crisis. The magazine further wrote that converting geopolitical influence into cash risks perpetuating a cycle of lackluster reform efforts, poor growth and eventual bailouts.
Sources said Saudi Arabia will also extend the $1.2 billion annual oil service on deferred payments, which expires this month. Islamabad is paying a 6% interest rate on the oil facilities it uses to buy crude oil from the kingdom.
Pakistan on Friday raised $500 million debt at an interest rate of 7% against Eurobonds purchased by Standard Chartered Bank. The government did not offer the Eurobonds to the foreign general public and instead raised the debt through institutional investors.
Pakistan is required to report to the IMF all transactions related to foreign debt, valued at more than $3 million.
The documents showed that the central bank and the Ministry of Finance report on external disbursements from the Asian Development Bank, the Islamic Development Bank, the World Bank, bilateral oil facilities, China, Saudi Arabia, the United Arab Emirates, external placements of bonds and other commercial loans, including foreign currency financing provided by local branches of foreign banks, and any proceeds from sales of state assets to official bilateral partners and sovereign wealth funds to the IMF.
Islamabad periodically provides a list of all disbursements and amortization payments for external budget financing and external grants, including the date of the transaction, the amount in foreign currency, the exchange rate applied and the amount in rupees credited to the IMF.
