Pakistan to repay $3.5 billion UAE debt: cabinet minister

Senior govt officials say discussions are taking place to convert a portion of the amount into investment

ISLAMABAD:

Pakistan has decided to return the $3.5 billion debt of the United Arab Emirates (UAE) this month, a senior cabinet minister said in a background briefing on Friday, ending speculations about the fate of the debt that Abu Dhabi had started rolling over only for a month.

The political leadership has decided to pay back the entire UAE debt, said one of the senior cabinet ministers while briefing the anchorpersons in his office.

Out of the $3.5b, a $450 million loan was taken in 1996-97 for one year, which Pakistan would be returning next week after 30 years, according to another government official.

While the cabinet minister said that the money was being returned, some senior government officials said that the discussions were taking place to convert a portion of the amount into investment.

It is believed that while the UAE was earlier reluctant to rollover the debt, the US-Israel-Iran war expedited the entire process, which has now culminated in the preparations to repay the debt.

The Express Tribune had reported in January that the UAE rolled over two loans of $1b each, which matured on January 16 and 22, only for a month. Pakistan had sought a two-year rollover and an interest rate of around 3%. But the UAE rolled it over then at the old terms of 6.5% interest rate.

Under the $7b International Monetary Fund programme (IMF), the UAE, Saudi Arabia and China had committed to maintaining their combined $12.5b in cash deposits with the State Bank of Pakistan (SBP) at least until the programme expires in September next year.

In December, SBP Governor Jameel Ahmad requested the UAE government to roll over the $2.5b in debt 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 UAE had agreed to roll over the debt, but did not provide further details.

The UAE provided $2b to Pakistan in 2018 for one year, but Pakistan was unable to repay the amount and has sought rollovers annually since then. Later, the UAE extended another loan of $1b in 2023 to help Pakistan meet external financing requirements for an IMF bailout.

Early last month, Ahmad said that the UAE was not demanding repayment of the $2b loan, but had instead shifted it to a monthly rollover. But it has now emerged that the UAE asked Pakistan to pay back its money, which had originally been given only for one year.

The Pakistani authorities said that the government would return $450 million on April 11, $2b on April 17th and another $1b on April 23rd. They said that they were making arrangements to pay the debt.

However, there was a possibility that the money would be paid out of the $16.4b foreign exchange reserves held by the central bank.

Cumulatively, Pakistan will pay back $4.8b debt in April, including $1.3b Eurobond on April 8th.

The cabinet minister said that the official foreign exchange reserves remained at comfortable levels and the country in the past had survived with as few reserves as one week's worth of imports.

While addressing leading exporters and industrialists early this year, PM Shehbaz had acknowledged that central bank reserves had increased, but said this was largely due to $12b in cash deposits from friendly countries.

He also said that when he travelled the world seeking financial assistance, he felt embarrassed. "Our self-respect suffers greatly when we take on debt," he said, adding that such countries sometimes ask for concessions in return and "we cannot 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 fiscal year.

The government is also struggling to formulate a viable plan to double exports from $32b over the next three years to exit the IMF programme. Foreign investment has failed to pick up despite efforts and instead sharply fell during this fiscal year.

In 2018, the UAE charged an interest rate of 3% on the debt, but last year increased it 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 $250m worth of Panda Bond in January this year has hit a snag due to mismanagement of the entire issue.