Pakistan Explores Commercial and Bilateral Options to Repay $3 Billion UAE Debt

Pakistan is weighing multiple financial options to repay a $3 billion loan to the United Arab Emirates after failing to secure a rollover agreement for the first time in seven years, Finance Minister Muhammad Aurangzeb said. The development comes at a time when the country is navigating economic pressures driven by rising global oil prices and geopolitical tensions. The inability to extend the loan has added strain to Pakistan’s external finances, prompting urgent consideration of alternative funding sources.

Aurangzeb stated that the government is exploring a mix of financing avenues, including commercial borrowing and bilateral support, to maintain adequate foreign-exchange reserves. Speaking in Washington during international financial meetings, he emphasized that Pakistan remains committed to meeting its obligations. However, he declined to provide specific details on the potential sources of funding or timelines for repayment, indicating that discussions are ongoing at multiple levels.

Pakistan’s foreign-exchange reserves stood at $16.4 billion as of March 27, providing coverage for nearly three months of imports. While this level is considered manageable, the recent inability to roll over the UAE loan has raised concerns about the sustainability of these reserves. The situation has been further complicated by external shocks, including volatility in oil markets and disruptions linked to ongoing conflicts in the Middle East.

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The finance minister noted that prior to the recent geopolitical tensions, Pakistan’s fiscal and external positions were relatively stable. He expressed confidence in the country’s ability to meet its financial commitments despite the evolving global environment. The current economic strategy, he said, focuses on maintaining reserve levels while ensuring access to diverse funding channels to mitigate risks associated with external shocks.

Aurangzeb is currently in Washington to attend the spring meetings of the International Monetary Fund and the World Bank, where global economic leaders are discussing pressing challenges such as trade imbalances and the economic impact of geopolitical conflicts. Pakistan is also awaiting approval from the IMF’s executive board for the next tranche of its $7 billion bailout programme, which is expected to unlock approximately $1.3 billion in additional funding.

Looking ahead, Pakistan plans to re-enter global bond markets after a four-year gap by issuing eurobonds, Islamic sukuk instruments, and dollar-settled rupee-linked bonds. The government is also preparing to launch its first yuan-denominated “Panda bonds” with support from multilateral institutions. While the country is not currently seeking changes to its IMF programme, Aurangzeb indicated that authorities remain prepared to engage further if macroeconomic vulnerabilities intensify in the coming months.

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