Pakistan's UAE loan repayment pressures its economy

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Pakistan’s UAE loan repayment pressures its economy

April 7, 2026

Pakistans UAE loan repayment pressures Pakistan economy — A composite image of Pakistan’s Prime Minister Muhammad Shehbaz Sharif, right, and UAE President Sheikh Mohamed bin Zayed Al Nahyan, Abu Dhabi, UAE, February 11, 2025. Photo: UAE President’s Press Office/DubaiDiplomacy.com

ISLAMABAD,— Pakistan plans to repay a $3.5 billion loan to the United Arab Emirates this month, two government officials said on Tuesday.

The move increases pressure on foreign exchange reserves and raises the risk of breaching targets set under its International Monetary Fund program, with another $1.3 billion Eurobond payment due by June, Reuters reported.

The country aims to keep reserves above $18 billion by June under the $7 billion IMF arrangement, which requires bilateral deposits to be rolled over.

Central bank reserves are about $16.4 billion, and the UAE loan, equal to roughly 18% of holdings, adds strain to an economy still recovering as fuel costs rise and shortages linked to the Iran war drive inflation and slow growth.

The facility has been rolled over since 2018, including a $3 billion portion carrying about 6% annual interest, but was shifted from yearly to monthly extensions earlier this year before Islamabad chose to repay it fully, with clearance expected by April 23, 2026, one official said.

Another $450 million UAE loan has remained overdue for years and is included in the total repayment, the official added.

Pakistan’s foreign ministry said Saturday the central bank would begin repayments, without details, and rejected speculation the move was linked to geopolitical differences over the Middle East crisis.

Pakistan remains aligned with Saudi Arabia, while relations between Abu Dhabi and Riyadh have weakened in recent months due to the Yemen conflict and oil revenue losses tied to the closure of the Strait of Hormuz.

The Eurobond maturing before June adds to external pressure, bringing total obligations close to $4.8 billion.

The IMF, finance ministry and central bank did not respond to requests for comment.

UAE deposits form part of support from countries including China and Saudi Arabia, which Pakistan told the IMF would be rolled over, though it is unclear if funds will be replaced.

Without replacement, reserves could fall below agreed IMF levels, breaching program terms.

Waqas Ghani, head of research at JS Global Capital, said repayments will drain reserves in the near term and may pressure the rupee, adding timely support from partner countries is important for stability and market confidence.

The situation highlights ongoing external financing risks facing the country during the fiscal year period.

(With files from Reuters)