The State Bank of Pakistan has officially finalized the repayment of 3.45 billion dollars in deposits to the United Arab Emirates following the settlement of a final 1 billion dollar tranche. This significant financial movement was confirmed by the central bank via a public statement, noting that the final payment to the Abu Dhabi Fund for Development was processed on April 23. This follows a substantial 2.45 billion dollar repayment completed during the preceding week, marking the total clearance of these specific outstanding obligations to UAE-based institutions.
This debt retirement strategy comes at a critical juncture for Pakistan as the government works to balance its external financing requirements with macroeconomic stability goals. Interestingly, the repayment of the 2 billion dollar UAE debt on April 18 was facilitated by securing new financing from Saudi Arabia. Government officials indicated that the remaining 1 billion dollar obligation was also addressed through an additional loan from Saudi sources. While this transaction settles the immediate debt with Abu Dhabi, it essentially replaces one bilateral obligation with another, ensuring that the country’s foreign exchange reserves remain stable at approximately 15 billion dollars.
The timing of these repayments has raised questions regarding previous fiscal projections. Earlier internal documents from the finance ministry suggested that these specific repayments had not been factored into the schedule as recently as late last month. Furthermore, Pakistani authorities had previously assured the International Monetary Fund that external financing needs were secured through expected rollovers from key bilateral partners including China, Saudi Arabia, and the UAE. The decision by the UAE to seek the return of these funds created a 3.5 billion dollar gap in the projected financing plan, necessitating the quick arrangement of alternative funds from Riyadh.
Historically, these loans date back to different economic eras in Pakistan. A 2 billion dollar portion was originally acquired during 2018 to bolster falling foreign exchange reserves during a period of stalled negotiations with international lenders. Perhaps more striking is the settlement of a 450 million dollar loan that had been outstanding since the mid-nineties. This specific debt, initially contracted for a one-year term nearly thirty years ago, has finally been retired as part of this week’s sweeping financial settlements.
To prevent a liquidity crisis, Saudi Arabia has also stepped in to extend an existing 5 billion dollar cash deposit for an additional two years. While Pakistan previously managed these Saudi loans at a 4 percent interest rate, the specific terms and interest rates for the latest 3 billion dollar infusion have not been publicly disclosed. Under the framework of the current 7 billion dollar IMF program, major bilateral partners had initially committed to maintaining a combined 12.5 billion dollars in cash deposits with the State Bank of Pakistan until the program concludes in late 2025.
The recent shift in the UAE’s stance follows a period of short-term extensions. Earlier in the year, the UAE had rolled over 2 billion dollars for only a single month at an interest rate of 6.5 percent, despite Pakistan’s request for a longer two-year commitment at a lower rate. By successfully navigating these repayments through alternative bilateral support, the central bank aims to demonstrate its ability to meet international obligations, though the reliance on new debt to pay old deposits highlights the ongoing complexities of the nation’s external financing strategy.
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