Unexpected repayment of $3.5 billion UAE loan puts pressure on Pakistani economy

Pakistan will return a $3.5 billion loan to the United Arab Emirates this month, two government officials said on Tuesday, raising pressure on reserves and risking breaches of IMF program targets with an additional $1.3 billion Eurobond repayment due by June.



The repayment comes as Pakistan targets foreign exchange reserves above $18 billion by June under a $7 billion International Monetary Fund programme, which requires bilateral deposits to be rolled over.



Pakistan's central bank reserves stand at about $16.4 billion, with the UAE loan — around 18% of holdings — adding pressure on an economy still recovering as fuel costs rise and shortages linked to the Iran war fuel inflation and weigh on growth.



The loan had been rolled over since 2018, including a $3 billion facility at around 6% annual interest, but was shifted from annual to monthly extensions earlier this year before Islamabad decided to repay it in full, with clearance expected by April 23, one of the officials said.



Another $450 million UAE loan has remained overdue for years, the official added. This amount is part of the total $3.5 billion being repaid, he said.