ISLAMABAD: Pakistan has decided to repay $3.5 billion in debt to the United Arab Emirates (UAE) before the end of the current month, a senior government official said on Friday.
According to the official, the decision was made despite the expected strain on the country’s foreign exchange reserves, describing it as a step necessary to preserve “national dignity.”
The official revealed that Abu Dhabi had requested the immediate repayment of the amount.
“The amount will be returned as soon as possible,” the official said, adding that “national dignity could not be compromised for financial considerations.”
The funds were originally provided by the UAE in 2019 as part of external financial assistance aimed at helping Pakistan stabilise its balance of payments.
The official added that the move has removed uncertainty surrounding the deposits, which were placed through the Abu Dhabi Fund for Development and had been rolled over several times since 2019. In recent months, these extensions had been reduced to periods as short as one month, signalling growing unease from the Emirati side over continuing the arrangement.
Under its current International Monetary Fund (IMF) programme, Pakistan is required to secure approximately $12.5 billion in rollovers from three major partners — China, Saudi Arabia, and the UAE — in order to maintain reserve levels and meet its external financing requirements. The UAE deposits had been a key component of this framework.
The latest available figures show that Pakistan’s central bank reserves stand at around $16.3 billion. A repayment of $3.5 billion would sharply reduce these reserves by nearly 18 per cent, significantly weakening the country’s external buffer and import cover.
Other officials acknowledged that the repayment would impact reserve levels but said the decision was taken in light of changing bilateral considerations and the UAE’s demand for immediate settlement.
Economic analysts warned that returning the funds could put additional pressure on the Pakistani rupee and complicate Pakistan’s position under the IMF programme unless fresh inflows are secured. However, officials did not indicate any immediate plans for replacement financing.
Meanwhile, the Ministry of Finance, in a post on X, said it was “continuously monitoring and managing Pakistan’s external flows in order to ensure stable foreign exchange reserves.”
“The government of Pakistan remains committed to fulfilling all its external obligations,” the ministry added.
The statement also referred to recent media speculation and commentary regarding Pakistan’s external financial flows, reiterating that the ministry was actively managing the situation to maintain reserve stability.