Pakistan Replaces UAE Debt with New Saudi Loans

Pakistan has undertaken a strategic restructuring of its external debt obligations by refinancing maturing liabilities owed to the United Arab Emirates through newly secured financing from the Kingdom of Saudi Arabia. This approach has enabled the government to fulfill immediate repayment commitments without exerting pressure on the country’s foreign exchange reserves.

According to official disclosures, the Government of Pakistan repaid USD 2 billion to the UAE on Saturday utilizing funds obtained via Saudi financing arrangements. This brings the cumulative repayments to Abu Dhabi during the current week to approximately USD 2.5 billion. The outstanding balance of USD 1 billion is scheduled for settlement on Thursday, contingent upon the disbursement of an additional Saudi loan tranche anticipated in the coming week.

Despite the magnitude of these repayments, authorities have clarified that Pakistan’s foreign exchange reserves—currently estimated at approximately USD 15 billion—will remain largely unaffected. This is attributable to the refinancing structure, wherein existing liabilities are effectively rolled over rather than discharged through reserve depletion.

The accelerated repayment demand from the UAE generated an unanticipated financing requirement of approximately USD 3.5 billion. In response, the government was compelled to mobilize alternative funding sources to remain compliant with its obligations under the USD 7 billion programme with the International Monetary Fund (IMF).

Notably, these repayments were not incorporated within earlier fiscal projections of the Ministry of Finance. As recently as the prior month, the government had indicated to the IMF that its external financing requirements for the forthcoming year were fully secured through expected rollovers from key bilateral partners, including China, Saudi Arabia, and the UAE.

The USD 2 billion liability repaid during the current week originated in 2018 under the administration of former Prime Minister Imran Khan, during a period of declining reserves and delayed IMF negotiations. Additionally, Pakistan settled a separate USD 450 million obligation to the UAE earlier in the week, relating to a loan extended in 1996–97 for a one-year term that had remained outstanding for nearly three decades.

In parallel with these refinancing measures, Saudi Arabia has agreed to extend the maturity period of its existing USD 5 billion deposit with Pakistan by an additional two years, thereby maintaining a critical liquidity buffer. However, it remains uncertain whether the revised arrangements—including both the extension and new financing—will retain the prior interest rate of approximately 4% or be subject to upward repricing.

Furthermore, Saudi authorities are expected to renew the USD 1.2 billion annual oil financing facility on a deferred payment basis, which is due to expire this month. Pakistan currently incurs an interest cost of approximately 6% on this facility, which supports crude oil import financing.

Separately, the government has secured an additional USD 500 million through commercial borrowing via Eurobonds, placed with institutional investors and primarily subscribed by Standard Chartered Bank. The issuance carries an interest rate of approximately 7% and was executed through a private placement rather than a public offering in international capital markets.

Under the prevailing IMF programme framework, Pakistan’s principal bilateral partners have committed to maintaining aggregate deposits of USD 12.5 billion with the State Bank of Pakistan until the programme’s conclusion in September of the following year. This arrangement serves as a financial safeguard against external account pressures.

However, financial analysts have raised concerns regarding the continued reliance on short-term bilateral refinancing mechanisms. Such practices may defer immediate liquidity stress but do not materially reduce the underlying debt stock, thereby perpetuating structural vulnerabilities within the external sector.

In accordance with IMF reporting requirements, Pakistan is obligated to disclose all external borrowing and repayment transactions exceeding USD 3 million. This includes financing from multilateral institutions, bilateral lenders, and commercial entities, along with detailed documentation of exchange rate applications and rupee-equivalent valuations for each transaction.