Pakistan Completes $3.45 Billion Debt Repayment to UAE, Ending Nearly Three Decades of Borrowing
Pakistan has concluded a significant chapter in its financial history by fully repaying a $3.45 billion debt to the Abu Dhabi Fund for Development (ADFD). This repayment, confirmed by the State Bank of Pakistan, marks the end of a nearly three-decade-long borrowing relationship with the United Arab Emirates (UAE). The repayment was executed in three installments throughout April 2026.
Origins of the Debt
The $3.45 billion figure is not the result of a single loan but rather an accumulation of multiple borrowings over the past thirty years. The debt traces back to 1996, when Pakistan secured a one-year loan of $450 million. This initial loan was never fully settled, leading to a prolonged obligation that persisted for nearly three decades.
In 2018, the government led by former Prime Minister Imran Khan delayed negotiations with the International Monetary Fund (IMF). In response, the UAE approved a substantial loan of $2 billion to stabilize Pakistan’s dwindling foreign exchange reserves. A subsequent loan of $1 billion was extended in 2023 to assist Pakistan in meeting the conditions of the IMF bailout program.
Initially, the UAE charged a 3% interest rate on the loans, which later escalated to 6.5%. Pakistan sought to revert to the original rate, but the UAE declined the request.
The UAE’s Stance on Loan Extensions
The term “rollover” refers to an agreement that allows for the extension of a loan’s repayment deadline. Over recent years, the UAE had been accommodating Pakistan by extending its repayment deadlines annually. During this period, Pakistan was able to park the borrowed funds in its central bank while servicing the interest.
However, the UAE eventually reduced the rollover periods from annual extensions to just one month. This shift indicated a clear intention for Pakistan to repay the borrowed amounts. Ignoring these signals led UAE authorities to establish a firm deadline of April 2026 for full repayment. Pakistan had previously requested a two-year extension at a lower interest rate, but the UAE only granted a one-month rollover for two $1 billion loans.
In February 2026, Pakistan’s Federal Minister Muhammad Aurangzeb asserted that there was “no shortfall in external financing.” Ultimately, Pakistan utilized additional financing from Saudi Arabia to settle the final installment on April 23.
Factors Influencing Abu Dhabi’s Decision
The urgency behind Abu Dhabi’s decision to recall its funds is widely attributed to escalating regional tensions and economic uncertainties in the Gulf. The ongoing conflict in the region has placed the UAE under direct threat, prompting a reassessment of its financial commitments.
National Pride and Financial Obligations
The Pakistani government faced a challenging situation as Abu Dhabi opted to recall its funds rather than extend favorable terms. The repayment was not merely a financial obligation but also a matter of national pride for Pakistan.
Prime Minister Shahbaz Sharif has previously acknowledged the detrimental effects of relying on foreign loans, stating that such dependence has forced Pakistan to compromise its dignity.
Mechanisms of Repayment
Pakistan’s reserves alone were insufficient to cover the repayment. Officials confirmed that new financing from Saudi Arabia facilitated the repayment of $2 billion, bringing the total payments to $2.45 billion within the same week. The remaining $1 billion was repaid on April 23, also with the assistance of Saudi financing. The State Bank of Pakistan confirmed via a post on X that this completed the total repayment of $3.45 billion to the UAE.
In parallel, Saudi Arabia extended its existing $5 billion deposit with the State Bank of Pakistan for an additional two years. This included a $3 billion deposit established during the IMF-World Bank Spring Meetings in Washington. While these extensions helped prevent reserve outflows, they did not directly fund the loan repayment.
Additionally, Pakistan raised $500 million through Eurobond issuance to bolster its reserves. The Federal Minister of Finance indicated that the government is actively seeking further bilateral support to compensate for the gap left by the UAE facility.
Current Economic Position of Pakistan and UAE
Following the repayment of the UAE loan, Pakistan’s reserves are approximately $15 billion, covering nearly 2.8 months of imports, which the finance minister has described as critical. Officials have assured that the repayment will not adversely affect the reserves. By extending its $5 billion deposit while enabling Pakistan to settle its UAE obligations, Saudi Arabia has proven to be a vital financial partner.
The UAE’s decision to recall its funds is seen as a recalibration rather than a complete severance of ties. Reports indicate that Abu Dhabi is open to discussions about converting its financial exposure in Pakistan into long-term infrastructure investments. This shift could transform a politically sensitive financial dependency into a mutually beneficial economic partnership.
The trajectory of these discussions will depend on how both nations navigate the aftermath of the debt repayment. Pakistan faces the challenge of diversifying its financing sources, maintaining its reserves, and meeting IMF targets without relying heavily on Gulf deposits. The future remains uncertain as to whether this month signifies the conclusion of a borrowing cycle or merely a temporary pause before the next phase of financial dependency begins.
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Published on 2026-04-24 17:47:00 • By the Editorial Desk
