Pakistan has formally asked the United Arab Emirates (UAE) to extend repayment of $2.5 billion in loans for two years and reduce the interest rate by nearly half, including on a $450 million facility dating back three decades. The request coincided with the UAE president’s recent visit to Pakistan, during which Prime Minister Shehbaz Sharif confirmed that the rollover had been agreed, though without specifying the duration.
According to government and central bank sources, $2.45 billion of the debt is maturing imminently, with $1 billion due this week and another $1 billion next week. While the UAE leadership has reportedly agreed to extend the loans, clarity is awaited on whether the rollover will be for one year or two. Pakistan has also sought to bring the interest rate down from the current 6.5 percent to around 3 percent, citing improved credit ratings and lower global borrowing costs.
Deputy Prime Minister Ishaq Dar recently disclosed that Pakistan owes $12 billion to friendly nations, including $5 billion to Saudi Arabia, $3 billion to the UAE and $4 billion to China. The UAE had previously extended $2 billion in 2018 at 3 percent interest, but last year raised the rate to 6.5 percent. A $1 billion deposit was also made in July 2023 under IMF conditions to meet external financing needs.
Pakistan’s external sector stability remains heavily dependent on loan rollovers and fresh financing from multilateral lenders. Exports have fallen nearly 9 percent to $15.2 billion in the first half of the fiscal year, while foreign investment continues to lag. In response, Prime Minister Sharif has formed a committee tasked with doubling exports from $32 billion to $63 billion within four years.
Separately, the World Bank has cautioned that Pakistan’s investment levels remain below the $20 billion target set under its Country Partnership Framework. Finance Minister Muhammad Aurangzeb met with World Bank officials, who stressed the need for reforms in state-owned enterprises, trade facilitation, capital markets and the business environment. The bank has approved a 10-year, $20 billion package, but its implementation depends on Pakistan meeting policy milestones.
Pakistan has also sought World Bank support in refinancing $36 billion in energy sector debt. While the lender may not cover the full amount, it has indicated willingness to provide guarantees to help restructure high-cost liabilities. A preliminary proposal envisions replacing expensive foreign loans with cheaper multilateral financing, with a 15-year repayment plan and a four-year grace period. The government hopes this will reduce electricity tariffs to around Rs25 per unit, easing the burden on consumers.
