Pakistan Says It Will Repay $3.5 Billion In Matured Loan Deposits To UAE

Pakistan will return matured loan deposits to the United Arab Emirates, in a move that will strain the South Asian nation's reserves.

The deposits "were placed under bilateral commercial agreements, demonstrating the UAE's strong support for Pakistan's economic stability and prosperity," according to a statement by the Foreign Ministry posted on X on Saturday.

They have now matured and will be returned through the State Bank of Pakistan, it said.

The move comes despite State Bank of Pakistan Governor Jameel Ahmad previously reiterating that bilateral partners have assured the country its debt will continue to be rolled over.

It is unclear what has changed that led to the return of the UAE deposits.

The total debt amounts to $3.5 billion, according to the Express Tribune, citing an unnamed cabinet official.

The repayment will strain Pakistan's dollar reserves, which stood at $16.4 billion as of March 27.

Pakistan also has a $1.3 billion bond payment due in April.

Last week, authorities scrapped a blanket fuel subsidy and raised diesel and petrol prices for the first time in nearly a month to help government coffers weather a spike in oil costs arising from the war in the Middle East.

"This will assuredly place Pakistan in a precarious position," said Burzine Waghmar, a member of the Centre for the Study of Pakistan at SOAS University of London.

"The energy crunch and Strait of Hormuz blockade is already having grim consequences."

Pakistan has about $12 billion in debt from friendly countries, mainly China, Saudi Arabia and the UAE which had kept extending the loans every year at maturity.

Pakistan averted a balance-of-payment crisis in 2019 when Saudi and the UAE provided a total of $4 billion to it.

"This will create a critical situation for Pakistan as it will create an alarming financial gap," said Shakil Anwer Kamal, an independent economist and university lecturer.

The International Monetary Fund said last month that Pakistan's inflation and current account balance remained contained, and external buffers have strengthened, as the two sides came to an initial agreement on the third tranche of a bailout programme.

Pakistan will have to discuss the financial gap with the IMF as it will impact the dollar reserves target, Kamal said.

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