ISLAMABAD:
Pakistan has decided to repay the United Arab Emirates’ (UAE) $3.5 billion debt this month, a senior minister said in a background briefing on Friday, ending speculation over the fate of the debt that Abu Dhabi had only started rolling over for a month.
The political leadership has decided to repay the entire UAE debt, one of the senior ministers said while briefing the anchor persons in his office.
Of the $3.5 billion, $450 million in loans had been taken in 1996-97 for one year, which Pakistan would return next week after 30 years, according to another official.
While the minister said the money was returned, some senior officials said discussions were taking place to convert part of the amount into investment.
It is believed that while the UAE was previously reluctant to transfer the debt and the US-Israel-Iran war hastened the whole process, which has now culminated in preparations to repay the debt.
The Express Pakinomist had reported in January that the UAE transferred two loans of $1 billion each, which matured only on January 16 and 22 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.
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.
In December, the Governor of the State Bank of Pakistan, Jameel Ahmad, had requested the UAE government to transfer the debt of $2.5 billion 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 prime minister said the United Arab Emirates had agreed to transfer the debt, but gave no further details.
The United Arab Emirates gave $2 billion to Pakistan in 2018 for one year, but Pakistan was unable to repay the amount and since then has applied for rollovers annually. Later, the UAE extended another $1 billion loan in 2023 to help Pakistan meet external financing requirements for an IMF bailout.
Early last month, SBP Governor Jameel Ahmad said the UAE was not demanding repayment of the $2 billion loan but had instead moved it to a monthly rollover”.
In December, Governor Ahmad had requested the UAE government to roll over $2.5 billion in 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 prime minister said the United Arab Emirates had agreed to transfer the debt, but gave no 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, there was a possibility that the money would be paid out of the $16.4 billion in foreign exchange reserves held by the central bank.
Cumulatively, Pakistan will repay $4.8 billion of debt in April, including the $1.3 billion Eurobond on April 8.
The minister said official foreign exchange reserves remained at comfortable levels and the country had previously survived on reserves as low as a week’s worth of imports.
Speaking to leading exporters and industrialists earlier this year, Prime Minister Shehbaz Sharif acknowledged that central banks’ 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 to seek financial help, he felt embarrassed. “Our self-respect suffers a lot when we take on debt,” he said, adding that such countries sometimes ask for concessions in return and “we can’t say too many things they want us to do”.
The government is struggling to boost exports, which have fallen 8% during the first nine months of the current financial year.
The government is also struggling to formulate a viable plan to double exports from $32 billion over the next three years to exit the IMF program. Foreign investments have not increased despite the efforts and instead fell sharply during this financial year.
In 2018, the UAE charged 3% interest on the debt, but last year it increased to 6.5%. Pakistan has requested the UAE to reduce the rate to around 3%, citing improvements in its credit rating and lower global interest rates.
The government’s plan to float $250 million in Panda Bonds in January this year has hit a snag due to mismanagement of the entire issue.
