UAE Rolls Over $2 Billion Loan to Pakistan for One Month

The United Arab Emirates has rolled over $2 billion in loans to Pakistan for just one month at an interest rate of 6.5%, showing Islamabad’s continued reliance on short-term external financing to shore up its foreign exchange reserves.

According to Express Tribune, the UAE extended two $1 billion facilities that matured on Jan. 16 and Jan. 22, granting a one-month rollover to allow further talks on maturity and pricing. Pakistan is seeking a longer, two-year extension and a reduction in the interest rate to around 3% to ease pressure on its external account.

The move departs from previous practice, where the Gulf nation typically granted annual extensions. Officials said the short rollover reflects ongoing negotiations and that clarity on the tenor and cost of the debt is expected in the coming days.

Under Pakistan’s $7 billion International Monetary Fund program, the UAE, Saudi Arabia and China have committed to maintaining a combined $12.5 billion in deposits at the central bank through September next year.

Still, the UAE’s loans remain critical: the $2 billion facility accounts for a significant portion of Pakistan’s roughly $16 billion in foreign exchange reserves, and costs Islamabad about $130 million a year in interest at current rates.

Pakistan has repeatedly rolled over the UAE funding since receiving the initial $2 billion in 2018, and added another $1 billion facility in 2023 to help meet IMF financing conditions.

While the UAE originally charged about 3% interest, the rate was raised to 6.5% last year. Islamabad has asked for a cut, citing improvements in its credit outlook and easing global borrowing costs.