Since July 22, many unauthorized money changers have been closed after military intelligence summoned foreign exchange traders to deal with the rising dollar rate on the open market. photo: file
ISLAMABAD:
Pakistan on Saturday repaid $2 billion in debt from the United Arab Emirates after seven years, reducing its dependence on the Gulf country whose support helped Islamabad weather two economic crises in 2018 and 2023.
Pakistan has paid off the UAE’s debt of $2 billion by taking on new debt from Saudi Arabia, bringing total repayments in Abu Dhabi this week to $2.5 billion, according to government officials.
The Finance Ministry only took into account these repayments late last month and assured the International Monetary Fund that its external financing needs were fully met thanks to refinancing by China, Saudi Arabia and the United Arab Emirates, according to new details.
Former Prime Minister Imran Khan’s government had taken a $2 billion loan in 2018 to maintain foreign exchange reserves which were on a downward trajectory due to a delay in reaching an agreement with the IMF. Another loan of $450 million from the UAE, paid by Islamabad earlier this week, was taken in 1996-97 for a period of one year, and Pakistan returned it after 30 years.
There would be no negative impact on foreign exchange reserves which are around $15 billion, since the debt is repaid by contracting new debt.
Finance Ministry officials said Pakistan would pay the remaining $1 billion of the UAE’s debt next Thursday. This could also be resolved by benefiting from another billion-dollar Saudi loan. The Kingdom will disburse another loan tranche next week.
Saudi Arabia also extended existing debt of $5 billion based on cash deposits for two years, the officials said. Pakistan previously paid an interest rate of 4% on Saudi loans and it is unclear whether the extension and new debt of $3 billion will be given at the existing rates or the new rates.
The UAE’s decision to demand their money back has created a $3.5 billion deficit. Finance Ministry officials said the government had not taken into account the UAE’s repayment and assured the IMF last month that “based on existing financial commitments from bilateral and multilateral partners, the (IMF) program is fully funded for the next 12 months.”
He had further assured the IMF in March that, as promised at the outset of the Extended Fund Facility, Pakistan’s bilateral partners would also continue to roll over their short-term claims, including loans, swaps and deposits, throughout the duration of the program.
Under the IMF’s $7 billion program, the UAE, Saudi Arabia and China had pledged to maintain their combined cash deposits of $12.5 billion with the SBP at least until the program expires in September next year.
The Express PK Press Club reported in January that the UAE had spent more than $2 billion in a month. Pakistan had asked for a two-year renewal and an interest rate of around 3%. But the United Arab Emirates then renewed it at the old conditions, an interest rate of 6.5%.
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. Subsequently, Prime Minister Shehbaz Sharif also requested the UAE President to extend the repayment period.
The Economist, a prestigious London-based publication, wrote on Thursday that although Pakistan’s economic safety margins are slim, its diplomatic prowess will help it weather the latest crisis. The magazine further writes that turning geopolitical influence into cash risks perpetuating a cycle of poor reform efforts, poor growth and possible bailouts.
The sources said Saudi Arabia would also extend the $1.2 billion annual oil facility with deferred payments, which expires this month. Islamabad pays a 6% interest rate on the oil facilities it uses to purchase crude oil from the kingdom.
Pakistan on Friday raised $500 million in debt at an interest rate of 7% against Eurobonds purchased by Standard Chartered Bank. The government did not offer the Eurobonds to the general foreign public and instead raised the debt from institutional investors.
Pakistan is required to report all external debt transactions, worth more than $3 million, to the IMF.
The documents show that the central bank and the Ministry of Finance report 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 bond placements and other commercial borrowings, including foreign currency financing provided by local branches of foreign banks, and any proceeds from the sale of state-owned assets to partners official bilaterals, from sovereign funds to the IMF.
Islamabad regularly provides a list of all disbursements and amortization payments for external budgetary financing and external grants, including the date of the transaction, the amount in foreign currency, the exchange rate applied, the amount in rupees credited to the IMF.
