By Staff Reporter
KARACHI: Pakistan has repaid in full $3.45 billion in deposits owed to the United Arab Emirates, the State Bank of Pakistan said Friday, closing out a longstanding bilateral facility that had been rolled over for years as part of efforts to stabilise the country’s external accounts.
The central bank said it transferred $1 billion to the Abu Dhabi Fund for Development on April 23 and had already repaid $2.45 billion the previous week. “This completes the repayment of total deposits of $3.45 billion to UAE,” the SBP wrote on X. The payments were made under bilateral deposit arrangements that had required annual rollovers until this year.
The UAE support dates back to 2018, when Abu Dhabi placed $2 billion with the SBP, followed by a further $1 billion in 2023 and a smaller $450 million line from 1996-97. Islamabad had relied on these funds, along with similar assistance from Saudi Arabia and other Gulf partners, to help manage a protracted balance-of-payments crisis. In March, Pakistan failed to secure a rollover agreement with the UAE — the first such lapse in seven years — prompting the decision to repay ahead of the April deadline.
A senior Pakistani official said earlier this month that the government viewed the repayment as a cost worth bearing to protect “national dignity,” even as it would temporarily weigh on foreign-exchange reserves. The move also coincided with the repayment of about $1.43 billion in external debt, including a $1.3 billion Eurobond that matured in early April.
The outflows come as Pakistan works to rebuild its buffers under a $7 billion International Monetary Fund program approved last year. The authorities are targeting reserves of around $18 billion by the end of the fiscal year in June — equivalent to roughly 3.3 months of import cover — up from levels that had slipped to about 2.8 months earlier in the month.
Fresh support from Riyadh helped blunt the impact. Pakistan received a $3 billion deposit from Saudi Arabia in two tranches: $2 billion on April 15 and $1 billion on April 21. Finance Minister Muhammad Aurangzeb said this month that the kingdom had also agreed to extend an existing $5 billion deposit for three years, lifting total Saudi holdings with the SBP to $8 billion and removing the previous annual rollover requirement.
Speaking on the sidelines of the IMF and World Bank spring meetings, Aurangzeb told reporters that “all options are on the table” to replace the UAE facility and manage the country’s external financing needs. He listed potential instruments including Eurobonds, which Pakistan expects to issue this year, Islamic sukuk and dollar-settled rupee-linked bonds, as well as commercial loans from other countries.
The minister said reserves remained adequate and that the government had not yet asked the IMF for any adjustments to its program because of economic shocks from the Middle East conflict. Such changes remained possible depending on developments in the coming weeks, he added. The IMF board is expected to approve the next disbursement — just under $1.3 billion under the Extended Fund Facility and Resilience and Sustainability Facility — next month.
The repayment will widen Pakistan’s near-term financing gap, including a roughly 6% interest cost on the UAE deposits, at a time when global capital markets remain constrained and energy prices volatile. Analysts have flagged external financing risks as a persistent vulnerability for the economy, even as the IMF-backed reforms have helped stabilise the balance of payments and lift investor confidence in recent quarters.
Aurangzeb also highlighted longer-term priorities, saying the conflict in the Middle East had underscored the need for a strategic petroleum reserve and a quicker shift toward renewable energy to reduce the country’s exposure to oil-import costs. The SBP reported foreign-exchange reserves of $20.63 billion as of April 17, while its own holdings rose $18 million to $15.10 billion in the week through that date.
Copyright © 2021 Independent Pakistan | All rights reserved
