UAE’s $3b lifeline averts imminent default

ISLAMABAD:

The UAE on Thursday agreed to provide a $3 billion lifeline to Pakistan in the shape of a rollover of the existing debt and new financing –  helping Islamabad avoid defaulting on its loans for a couple of more months.

The development comes as the country faces a daunting challenge to make $13 billion debt repayments in six months.

The Gulf state made the decision to defer the maturing $2 billion and hand over another $1 billion in additional loan to Pakistan during a meeting between Prime Minister Shehbaz Sharif and UAE President Sheikh Mohamed bin Zayed Al Nahyan, according to the PM’s Office.

The $3 billion lifeline has provided some breathing space to Pakistan, but it has not permanently ended the threat of sovereign default due to huge external debt repayments with less than $4.3 billion reserves in hand.

Pakistan is required to make over $13 billion external debt repayments from January to June 2023 and the UAE’s decision will lower the needs by less than one-fourth of the total.

The government will have to strive hard for the revival of the International Monetary Fund (IMF) loan programme if it wants the default threat to abate permanently.

Sources told The Express Tribune that during a meeting between Finance Minister Ishaq Dar and IMF Mission Chief Nathan Porter, the global lender told Pakistan to fulfill all assurances given to it in the recent past.

Of the total $13 billion six-month need, Pakistan has so far repaid about $1.2 billion and after the UAE rollover, the total requirement will be down to nearly $10 billion.

The $3 billion Chinese deposits are also maturing between March and June in this fiscal year.

Pakistan has repeatedly requested China to rollover this debt but there has been no progress so far.

China has also not yet rolled over around $325 million guaranteed debt that is maturing this month.

In addition, two Chinese commercial loans, totalling $1.4 billion, are maturing in the last quarter of the current fiscal year.

Pakistan’s safe path in the short-term still passes through the IMF, although the journey will be a bumpy one.

The government will have to take many difficult steps that will further erode its popularity among the people.

A press statement by the PM’s Office stated that the two leaders discussed the fraternal relations existing between Pakistan and the UAE.

Read State-owned companies to be offered to UAE

They also explored ways and means to further strengthen these ties, especially in the fields of trade, investment and energy.

The two leaders also had an exchange of views on regional and international issues of mutual interest, the statement added.

Both sides agreed to deepen investment cooperation, stimulate partnerships, and enable investment integration opportunities between the two countries, according to the PM’s Office.

In April last year, the UAE had offered to invest $2 billion in government-owned listed companies.

However, during the past nine months, Pakistan could not even push a single transaction to a level where the price could be ascertained by independent evaluators.

A day earlier, the finance minister had convened the maiden meeting of the Cabinet Committee on Inter-Governmental Commercial Transactions, but without an agenda on the table.

The huddle had a general discussion about the new law that would pave the way for the fast track sale of assets to foreign nations.

Also on Thursday, Pakistan and the Saudi Fund for Development (SFD) signed a $1 billion financing agreement for oil supplies, according to the economic affairs ministry’s press statement.

The move will help reduce pressure on the external account.

SFD Chief Executive Officer Sultan Abdulrahman Al-Marshad and Economic Affairs Secretary Dr Kazim Niaz signed the pact to finance oil derivatives worth $1 billion.

The statement read that the SFD CEO and economic affairs secretary expressed their satisfaction over the pace of steady progress in bilateral relations.

They agreed on the importance of enhanced bilateral exchanges and regular dialogue at all levels to further solidify and provide momentum to the relationship.

“Aimed at supporting Pakistan's economy, sector growth, and navigating economic challenges, the strategic agreement signed today comes as a continuation of the support provided by the Government of Saudi Arabia to the brotherly country Pakistan to build a sustainable economy,” the statement quoted the economic affairs secretary as saying.

Earlier, the SFD had provided $4.4 billion in oil financing from 2019 through 2021. The fresh step is an extension of the previously signed agreements in 2019 and 2021, according to the SFD CEO.

Since the SFD's establishment, it has supported more than 40 projects and programs in different development sectors valued at around $1.4 billion to finance Pakistan's energy, water, transportation, and infrastructure projects.