The United Arab Emirates has rolled over $2 billion in loans to Pakistan for one month at an interest rate of 6.5 percent, highlighting Islamabad’s continued dependence on short-term external financing to support its foreign exchange reserves.
According to The Express Tribune, the UAE extended two separate $1 billion facilities that matured on January 16 and January 22, granting a one-month extension to allow further negotiations on loan maturity and pricing. Pakistan is seeking a longer two-year extension and has asked for the interest rate to be reduced to around 3 percent to ease pressure on its external finances.
This short rollover marks a shift from past practice, as the UAE has typically provided annual extensions. Officials said the limited extension reflects ongoing talks, with clarity on the loan’s duration and cost expected in the coming days.
Under Pakistan’s $7 billion IMF program, the UAE, Saudi Arabia, and China have committed to maintaining a combined $12.5 billion in deposits with the State Bank of Pakistan through September next year.
Despite this support, UAE financing remains crucial. The $2 billion loan makes up a sizable share of Pakistan’s roughly $16 billion in foreign exchange reserves and costs the country about $130 million a year in interest at current rates.
Pakistan has repeatedly rolled over the UAE loans since first receiving $2 billion in 2018, and secured an additional $1 billion facility in 2023 to meet IMF financing requirements.
While the UAE initially charged interest of around 3 percent, the rate was increased to 6.5 percent last year. Pakistani officials have requested a reduction, citing improvements in the country’s credit outlook and easing global borrowing costs.
