Pakistan has decided to return a significant portion of its external debt to the United Arab Emirates (UAE) by the end of April. This decision follows a formal request from the UAE for the immediate return of these funds. The 2 billion dollar loan was originally held as a safe deposit with the State Bank of Pakistan (SBP) to support the balance of payments. While the UAE traditionally rolled over these deposits on a yearly basis, recent extensions became much shorter. Experts suggest that regional war pressures and shifting geopolitical dynamics in the Middle East prompted this sudden change in policy.
The Pakistani government has been paying approximately 6 percent interest on this specific deposit. Although Deputy Prime Minister Ishaq Dar recently secured a temporary extension until April 17, 2026, the UAE has opted not to grant further long-term rollovers. This repayment forms part of a larger $3 billion support package provided by the Abu Dhabi Fund for Development. With two tranches maturing this month, the government is moving quickly to settle the debt. Officials state that maintaining national dignity and honoring international obligations remains a top priority despite the financial strain this may cause.
Economic Impact of the 2 Billion Dollar Loan Settlement
This upcoming payment coincides with other major external obligations, including the maturity of a $1.3 billion Eurobond. Consequently, Pakistan faces a total outflow of roughly $3.3 billion during the month of April. While the central bank currently holds over $21 billion in reserves, this 2 billion dollar loan repayment will notably reduce those holdings. To mitigate the impact, the finance ministry is actively seeking bridge financing from other friendly nations. The government also expects a $1.2 billion injection from the IMF soon, which should help stabilize the foreign exchange position.
In addition to the UAE debt, Pakistan is working to secure rollovers for nearly $12 billion in other external deposits. This includes $5 billion from Saudi Arabia and $4 billion from China. These funds are critical for meeting the requirements of the ongoing IMF program and ensuring national economic stability. Despite the immediate challenge of returning the Emirati funds, officials remain confident in their external financing plan. They continue to monitor global market trends and maintain close contact with bilateral partners to manage future maturities. Moving forward, the government aims to diversify its funding sources to reduce reliance on short-term deposits.
