The United Arab Emirates (UAE) is poised to grant Pakistan a one-year extension to repay a $2 billion loan, a move sought by the caretaker Prime Minister, Anwaar-ul-Haq Kakar. The extension request is currently under negotiation, with the Ministry of Finance in Pakistan expressing confidence in reaching an agreement within the week.
This financial arrangement is reminiscent of a similar situation on January 18, 2023, when the UAE extended a $2 billion loan repayment at the request of then-Prime Minister Shehbaz Sharif. The UAE had initially deposited $3 billion in the State Bank of Pakistan, with $1 billion due on January 17 and the remaining $1 billion on January 23.
The stakes are particularly high as the loan repayment deadlines approach. The Ministry of Finance’s optimism stems from successful negotiations in the past, indicating a diplomatic precedent for such agreements between the two nations. The extension, if granted, would provide Pakistan with valuable fiscal breathing room.
As of January 5, 2024, the State Bank of Pakistan holds foreign currency reserves amounting to $8.155 billion, a slight decrease from $8.221 billion on December 29, 2023. Despite this dip, recent sessions have witnessed an overall increase in central bank reserves by over $1 billion. This financial stability contributes to Pakistan’s negotiating position, showcasing its ability to navigate economic challenges.
The ongoing negotiations between Pakistan and the UAE regarding a loan extension underscore the importance of diplomatic and financial cooperation. The outcome will not only impact Pakistan’s short-term fiscal obligations but also shape the dynamics of their economic relationship with the UAE.