Urgent Ultimatum: UAE Demands $3.5 Billion Loan Repayment from Pakistan Amidst Escalating Middle East Conflict

Pakistan is set to settle its USD 3.5 billion debt to the United Arab Emirates (UAE) by the end of April 2026, following a recent request from the UAE for immediate repayment. This development was confirmed by a senior official within the Pakistani cabinet and reported by the Press Trust of India (PTI). The urgency of the repayment stems from ongoing tensions related to the US-Israel-Iran conflict, which have affected financial relations in the region.

The repayment plan dictates that USD 450 million will be repaid on April 11, followed by USD 2 billion on April 17, and an additional USD 1 billion on April 23. Pakistani officials indicate that these funds may be drawn from the country’s foreign exchange reserves, which stand at approximately USD 16.4 billion. Among the outstanding debt, USD 450 million dates back to a loan taken in the 1996-97 period, marking nearly three decades since it was first incurred.

The decision to expedite repayment comes as the UAE has preferred short-term loan extensions over long-term rollovers. This trend was highlighted earlier in January when Pakistan sought a two-year extension on two loans, each worth USD 1 billion, but was instead granted mere month-long rollovers at an interest rate of 6.5 percent. The rapid shifts in global politics are believed to have prompted this latest move for repayment.

Concurrently, discussions are being entertained regarding the possibility of converting part of the debt into investments, as reported by The Express Tribune. These conversations aim to create a more sustainable financial relationship moving forward. Under the current USD 7 billion International Monetary Fund (IMF) program, the UAE, along with Saudi Arabia and China, has committed to maintaining a pool of USD 12.5 billion in deposits with Pakistan’s State Bank until the program concludes in September 2027.

Efforts for financial relief have been ongoing, with the Governor of the State Bank of Pakistan, Jameel Ahmad, previously requesting a two-year rollover of USD 2.5 billion in UAE debt at a lower interest rate. Prime Minister Shehbaz Sharif also approached the UAE President about this matter, suggesting that a rollover agreement was on the table, although definitive terms were lacking.

Pakistan’s financial history with the UAE has seen fluctuations, with a USD 2 billion loan issued in 2018 being repeatedly rolled over, and an additional USD 1 billion provided this year to meet IMF-related financing obligations. Recently, however, formal requests for repayment have been initiated, changing the narrative surrounding these loans.

In total, Pakistan is expected to repay USD 4.8 billion in April alone, which includes a USD 1.3 billion Eurobond due April 8. Despite these outflows, officials assert that foreign exchange reserves remain at “comfortable” levels. Prime Minister Sharif publicly acknowledged the necessity of external support, expressing concerns about the implications of such dependence on foreign financing, which often limits national autonomy.

Amid these economic pressures, Pakistan continues to face challenges, including a decline in exports by 8 percent over the first nine months of the fiscal year. This downturn complicates the government’s ambitious plans to double outward shipments from USD 32 billion within a three-year period, aiming to exit the IMF program.

The UAE’s previous loans were initially granted at a 3 percent interest rate but saw an increase to 6.5 percent last year. Pakistan has been advocating for a return to lower rates, citing improvements in its credit ratings and easing global interest rates. Additionally, plans to raise USD 250 million through a Panda Bond issuance faced setbacks due to mismanagement of the process.

In navigating these complexities, Pakistan’s financial future hangs in balance as it endeavors to address its debts while pursuing economic stability and growth.

Original Source: https://www.indiatoday.in/world/story/pakistan-to-repay-3-5-billion-usd-debt-to-uae-in-april-loan-repayments-shehbaz-sharif-2891452-2026-04-04
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Publish Date: 2026-04-04 12:33:00