ISLAMABAD: Pakistan has decided to repay a substantial portion of its deposits to the United Arab Emirates following Abu Dhabi’s request for immediate return of funds.

The repayment involves around $2 billion to $3.5 billion in total UAE-related debt, including facilities extended since 2019 through the Abu Dhabi Fund for Development to stabilise balance of payments.

Regional media reports indicate the move comes amid evolving geopolitical tensions in the Middle East linked to the US-Israel conflict with Iran.

A senior Pakistani official described the decision as upholding national dignity, stating that financial considerations would not compromise sovereignty.

Pakistan’s foreign exchange reserves currently stand above $21 billion according to multiple international reports, providing sufficient buffer for the repayment scheduled by end of April.

Scheduled tranches include approximately $450 million on April 11, $2 billion around April 17, and $1 billion by April 23 in some accounts of the full $3.5 billion obligation.

The State Bank of Pakistan holds these as safe deposits, on which Islamabad has been paying around 6 percent interest.

For the current fiscal year, Pakistan requires rollover of nearly $12 billion in external deposits from friendly countries.

This breaks down to about $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE, part of commitments under the ongoing $7 billion IMF Extended Fund Facility programme.

Repayment of the UAE portion could reduce central bank reserves by up to 18 percent from recent levels around $16.3 billion, trimming the external buffer and import cover.

Analysts warn this may heighten pressure on the Pakistani rupee if not offset by fresh inflows or successful rollovers.

Pakistan has simultaneously approached Saudi Arabia for enhanced long-term support.

Requests include converting the existing $5 billion Saudi deposit into a 10-year facility at favourable terms instead of annual rollovers.

Islamabad also seeks expansion of the deferred oil payment facility from the current $1.2 billion to $5 billion, with extended repayment periods up to three years per tranche.

Additional proposals cover securitisation of overseas Pakistani remittances estimated at $10 billion to access international capital markets at lower costs.

Saudi Arabia previously rolled over $3 billion in deposits through the Saudi Fund for Development, with extensions maintaining support since 2021.

In recent months, Riyadh extended another $3 billion for one year and provided oil facilities worth hundreds of millions at around 6 percent interest.

China has also rolled over portions of its $4 billion exposure in the same framework of friendly country support.

The IMF programme requires these rollovers to sustain reserve levels until the final review in September 2027.

Pakistan’s external financing needs remain significant, with total debt servicing and import requirements testing liquidity in coming months.

The UAE repayment, while reducing immediate liabilities, underscores the short-term nature of many bilateral deposits that demand frequent renewals.

Economic observers note that successful conversion to longer-term facilities with Saudi Arabia could lower annual interest burdens and provide greater predictability.

Pakistan’s foreign reserves have shown resilience, bolstered by these bilateral supports alongside IMF disbursements.

However, any gap in rollovers could impact macroeconomic stability targets agreed with the Fund.

Government officials continue monitoring external flows to ensure stable reserves, as stated in recent Finance Ministry updates.

The development highlights Pakistan’s delicate balancing of bilateral relations amid regional uncertainties.

While honouring the UAE request demonstrates commitment to obligations, the parallel outreach to Saudi Arabia signals efforts to secure more sustainable financing arrangements.

Analysts point out that Pakistan’s total external debt dynamics, including mark-up payments consuming a large share of budgetary outlays, make long-term restructuring critical.

In the revised estimates of the previous year, debt servicing accounted for over 50 percent of total expenditure in some projections.

The current strategy mixes repayment of maturing short-term deposits with requests for extended tenors and expanded facilities.

This approach aims to maintain IMF compliance while preserving strategic partnerships with Gulf allies.

Further details on the exact UAE repayment quantum and any offsetting arrangements remain under discussion, with official statements emphasising routine financial management.

Pakistan’s central bank and finance ministry are actively engaged in negotiations to mitigate any potential reserve drawdown effects.

The episode adds to ongoing efforts for economic stabilisation, where friendly country support forms a cornerstone alongside multilateral programmes.

Success in securing Saudi concessions could ease pressure in the second half of the fiscal year.

Observers will closely watch subsequent reserve figures and IMF review outcomes for signs of sustained stability.