Since July 22, several unauthorized exchanges have been closed after the military intelligence service called in currency traders to counter the rising dollar rate on the open market. photo: file
ISLAMABAD:
Pakistan on Saturday repaid $2 billion in debt to the United Arab Emirates after seven years, further reducing its dependence on the Gulf nation, whose support enabled Islamabad to sail through two economic crises in 2018 and 2023.
Pakistan returned the UAE debt of $2 billion by taking on a new debt from Saudi Arabia, bringing total repayments to Abu Dhabi this week to $2.5 billion, according to government officials.
The Treasury had not recognized these repayments until late last month and had assured the International Monetary Fund that its external financing requirements were fully met on the back of rollovers from China, Saudi Arabia and the UAE, the fresh details showed.
Former Prime Minister Imran Khan’s government had taken the $2 billion loan in 2018 to maintain foreign exchange reserves that were dwindling due to a delay in reaching an agreement with the IMF. Another $450 million UAE loan, which Islamabad paid earlier this week, had been taken in 1996-97 for a period of one year, which Pakistan returned after 30 years.
There would be no adverse impact on foreign exchange reserves hovering around $15 billion as debt is being repaid by taking on new debt.
Finance Ministry officials said Pakistan would pay the remaining $1 billion UAE debt this coming Thursday. This would also be settled by using another $1 billion Saudi loan. The Kingdom will disburse another loan tranche next week.
Saudi Arabia has also extended the existing $5 billion in deposit-based debt for two years, the officials said. Pakistan previously paid 4% interest on Saudi loans and it is not clear whether the extension and the new debt of $3 billion is given at the existing or the new rate.
The United Arab Emirates’ decision to reclaim its money had created a gap of $3.5 billion. Treasury officials said the government had not factored in the UAE repayment, and it assured the IMF last month that “based on existing funding commitments from bilateral and multilateral partners, the (IMF) program is fully funded for the next 12 months”.
It had further assured the IMF in March that Pakistan’s bilateral partners, as committed at the inception of the Extended Fund Facility, will also continue to carry forward short-term claims, including loans, swaps and deposits, for the duration of the programme.
Under the $7 billion IMF program, the UAE, Saudi Arabia and China had committed to maintain their combined $12.5 billion in cash deposits with the SBP, at least until the program expires in September next year.
The Express Pakinomist had reported in January that the UAE rolled over $2 billion for a month. Pakistan had sought a two-year rollover and an interest rate of around 3%. But the United Arab Emirates rolled it over then to the old terms of 6.5% interest.
In December, State Bank of Pakistan Governor Jameel Ahmad requested the UAE government to roll over the debt for 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 Economist – a prestigious London-based publication, wrote on Thursday that while Pakistan’s economic buffers are thin, its diplomatic prowess will help it through the latest crisis. The magazine also wrote that a reversal of geopolitical influence to cash risks perpetuating a cycle of flawed reform efforts, poor growth and possible bailouts.
The sources said Saudi Arabia will also extend the $1.2 billion annual oil facility on deferred payments, which expires this month. Islamabad pays 6% interest on the oil facility, which it uses to buy crude oil from the kingdom.
Pakistan on Friday raised a debt of 500 million dollars at 7% interest against Eurobonds bought by Standard Chartered Bank. The government did not offer Eurobonds to the overseas public and instead raised the debt through institutional investors.
Pakistan is required to report all foreign debt-related transactions worth over $3 million to the IMF.
The documents showed that the central bank and the Ministry of Finance report the external disbursements of the Asian Development Bank, Islamic Development Bank, World Bank, bilateral oil facilities, China, Saudi Arabia, UAE, external bond placements and other commercial loans, including foreign currency financing provided by local branches of foreign banks, and any proceeds from the sale of state-owned assets to the official bilateral IMF partners, state partners.
Islamabad regularly provides a list of all disbursements and amortization payments for external budget financing and external grants, including date of transaction, amount in foreign currency, exchange rate used, amount credited to IMF.
