Pakistan returns $2 billion more to UAE | The Express Tribune

Pakistan on Saturday repaid a $2 billion debt to the United Arab Emirates after seven years, further reducing its dependence on the Gulf nation whose support allowed Islamabad to sail through two economic crises of 2018 and 2023.

Pakistan returned the $2b UAE debt by taking a new debt from Saudi Arabia, bringing the total repayments to Abu Dhabi this week to $2.5b, according to government officials.

The finance ministry had not factored in these repayments till the end of last month and had assured the International Monetary Fund (IMF) that its external financing requirements were fully met on the back of rollovers by China, Saudi Arabia and the UAE.

The Pakistan Tehreek-e-Insaf government took the $2b loan in 2018 to sustain foreign exchange reserves that were on a downward trajectory due to delays in reaching a deal with the IMF. Another $450m UAE loan that Islamabad paid early this week was taken in 1996-97 for a year, which Pakistan returned after 30 years.

There will not be any negative impact on the foreign exchange reserves that are hovering around $15b, as the debt is being repaid by contracting new debt.

Finance ministry officials said that Pakistan would pay the remaining $1b UAE debt on Thursday. This would also be settled by availing another $1b Saudi loan that the kingdom will disburse next week.

Saudi Arabia has also extended the existing $5b cash deposit-based debt for two years, the officials said. Pakistan was earlier paying 4% interest rate on Saudi loans, and it is not clear whether the extension and the new $3b debt were given at the existing or the new rates.

The UAE’s decision to demand its money back had created a $3.5b hole. Finance ministry officials said that the government had not factored in the UAE repayment, and it last month assured the IMF that “based on existing financing commitments from bilateral and multilateral partners, the [IMF] programme is fully financed for the next 12 months”.

It had further assured the IMF in March that, as committed at the outset of the Extended Fund Facility, Pakistan’s bilateral partners will also continue rolling over short-term claims, including loans, swaps and deposits, for the duration of the programme.

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Under the $7b IMF programme, the UAE, Saudi Arabia and China had committed to maintaining their combined $12.5b in cash deposits with the central bank at least until the programme expires in September next year.

The Express Tribune had reported in January that the UAE rolled over $2b for one 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.

In December, State Bank of Pakistan Governor Jameel Ahmad requested the UAE government to roll over the 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.

London-based publication The Economist wrote on Thursday that though Pakistan’s economic buffers are thin, its diplomatic prowess will help it through the latest crisis. The magazine further wrote that turning geopolitical clout into cash risks perpetuating a cycle of lacklustre reform efforts, poor growth and eventual bail-outs.

Sources said that Saudi Arabia is also going to extend the $1.2b annual oil facility on deferred payments, which is expiring this month. Islamabad is paying a 6% interest rate on the oil facility that it is using to buy crude oil from the kingdom.

Pakistan on Friday raised a $500m in debt at 7% interest rate against Eurobonds purchased by the Standard Chartered Bank. The government did not offer the Eurobonds to the overseas general public and instead raised the debt through institutional investors.

Pakistan is required to report all foreign debt-related transactions valued over $3m to the IMF.

Documents showed that the central bank and the finance ministry report the external disbursements from the Asian Development Bank, Islamic Development Bank, World Bank, bilateral oil facilities, China, Saudi Arabia, UAE, external bond placements and other commercial borrowings, including foreign currency financing extended by local branches of foreign banks, and any proceeds from sales of state-owned assets to official bilateral partners, sovereign wealth funds to the IMF.

Islamabad regularly provides a list of all disbursements and amortisation payments for external budget financing and external grants, including the date of the transaction, foreign currency amount, exchange rate applied, and rupee amount credited to the IMF.