ISLAMABAD:
Pakistan has decided to return the United Arab Emirates’ (UAE) $3.5 billion debt this month, a senior minister said at a briefing on Friday, ending speculation about the fate of the debt that Abu Dhabi had started refinancing only a month ago.
Political leaders have decided to repay the UAE’s entire debt, one of the top cabinet ministers said during a briefing with presenters from his office.
Of the $3.5 billion, $450 million was contracted in 1996-97 for one year, and Pakistan was going to return it next week after 30 years, according to another government official.
While the 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 although the UAE was previously reluctant to refinance the debt and the war between the United States, Israel and Iran has accelerated the whole process, which has now culminated with preparations to repay the debt.
The Express PK Press Club reported in January that the United Arab Emirates had rolled over two loans of $1 billion each, which expired on January 16 and 22 for just one 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%.
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.
In December, State Bank of Pakistan Governor Jameel Ahmad had asked the UAE government to roll over the $2.5 billion debt over 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 prime minister said the UAE had agreed to roll over 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 refinancing every year. Later, the UAE provided another $1 billion loan in 2023 to help Pakistan meet external financing needs related to the IMF bailout plan.
Early last month, SBP Governor Jameel Ahmad said the UAE was not demanding repayment of the $2 billion loan, but rather rolling it over in a monthly amount. But it now emerges that the UAE has asked Pakistan to repay its money, which was initially only given for a year.
In December, Governor Ahmad asked the UAE government to roll over $2.5 billion in debt over two years and cut interest rates by almost half. Subsequently, Prime Minister Shehbaz Sharif also requested the UAE President to extend the repayment period. The prime minister said the UAE had agreed to roll over 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, it was possible that the money would be paid from the $16.4 billion foreign exchange reserves held by the central bank.
In total, Pakistan will repay $4.8 billion in debt in April, including $1.3 billion in Eurobonds on April 8.
The minister said official foreign exchange reserves remained at comfortable levels and the country had survived in the past with reserves as low as one week equal to its imports.
Speaking to 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 embarrassed. “Our self-esteem suffers greatly when we take on debt,” he said, adding that these countries sometimes ask for concessions in return and “we cannot say too many things they want us to do.”
The government is struggling to revive exports, which fell 8% during the first nine months of the current financial year.
The government is also struggling to formulate a viable plan to double exports by $32 billion over the next three years to exit the IMF program. Foreign investments failed to recover despite efforts and instead fell sharply during this fiscal year.
In 2018, the UAE imposed a 3% interest rate on debt, but last year it increased it to 6.5%. Pakistan has asked the UAE to cut the rate to around 3%, citing its improving credit rating and falling global interest rates.
The government’s plan to issue Panda Bonds worth $250 million in January this year has hit a snag due to mismanagement of the entire issuance.
