ISLAMABAD: The United Arab Emirates has provided Pakistan with a temporary30-day rollover on $2 billion in maturing deposits, extending maturity intoFebruary 2026 after tranches originally due in mid-January. This short-termreprieve, granted at an unchanged interest rate of 6.5 percent, offersimmediate breathing space to Pakistan’s foreign exchange reserves butsignals tougher stance from Abu Dhabi compared to previous annualextensions. Government and central bank sources indicate ongoingnegotiations for longer tenor and reduced rates, as Islamabad facesmounting external financing pressures under its IMF program.
The rollover involves two separate $1 billion facilities placed with theState Bank of Pakistan, one maturing on January 16 and the other on January22. Unlike prior arrangements where the UAE typically extended suchdeposits for a full year, this one-month extension reflects cautiousapproach amid Pakistan’s persistent requests for more favorable terms.Officials familiar with the matter confirm that talks continue between thePrime Minister’s Office, Ministry of Finance, and UAE authorities tofinalize a potentially extended rollover period, possibly up to two years.
Historically, the UAE extended generous support to Pakistan, includingdeposits at concessional rates around 3 percent in 2018 when the initial $2billion facility was arranged for one year. Subsequent tranches, includinga $1 billion addition in 2023, helped stabilize reserves during criticalperiods. However, the interest rate was raised to 6.5 percent in recentadjustments, doubling the cost burden and prompting Islamabad to seekreversal to lower levels, citing improved credit outlook and decliningglobal borrowing rates.
At the current 6.5 percent rate, the $2 billion facility imposes an annualinterest obligation of approximately $130 million on Pakistan. Thisrepresents a significant squeeze on fiscal resources, especially as thecountry manages repayments across multiple bilateral and multilateralobligations. The added cost equates to extra annual burden compared toearlier 3 percent terms, underscoring the financial strain from higherservicing expenses amid limited reserve buffers sufficient for only a fewmonths of imports.
Pakistan has formally requested rollover of the full $3 billion in UAEdeposits—including an additional $1 billion tranche due in July—for atleast one year, with ambitions for two-year extensions across facilities.Sources indicate that the shorter one-month term provides time for deeperdiscussions, potentially linking to broader economic cooperation or IMFcompliance milestones. The UAE’s decision aligns with cautious lendingpractices observed among Gulf allies, balancing support with riskassessment.
This development occurs against backdrop of Pakistan’s broader externaldebt management strategy, where rollovers from friendly countries like theUAE, Saudi Arabia, and China form critical component of reservestabilization. In the current fiscal year, authorities aim to securerollovers totaling around $12 billion in maturing obligations to avertimmediate repayment pressures. The UAE’s $3 billion total depositsconstitute substantial portion of the State Bank’s $16 billion foreignreserves, making any extension pivotal for economic stability.
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Negotiations remain fluid, with Pakistan emphasizing its progress under the$7 billion IMF Extended Fund Facility, which requires maintaining certainreserve floors and arranging external financing. The short reprieve avoidsoutright default risk on these tranches but highlights urgency forconclusive agreement. Officials express optimism that prolonged talks couldyield concessions, though the one-month window intensifies diplomaticefforts.
The shift from annual to monthly rollover marks departure from establishedpattern, potentially reflecting evolving bilateral dynamics or UAE’sinternal fiscal considerations. Nonetheless, the extension preservesessential support, preventing sudden reserve depletion that could triggermarket volatility or currency pressures. Pakistan continues advocating forrate reduction, arguing that current global conditions warrant more alignedterms.
Experts view this as strategic short-term measure within larger frameworkof diversified financing sources. Sustained high interest costs coulddivert resources from development priorities, emphasizing need fordiversified inflows through exports, remittances, and investments. Theepisode underscores Pakistan’s reliance on bilateral lifelines whilepursuing structural reforms for long-term self-reliance.
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