Pakistan completes $3.45b debt repayment to UAE

WEB DESK: The State Bank of Pakistan (SBP) has successfully concluded the full repayment of $3.45b in deposits to the United Arab Emirates, marking a significant milestone in the country’s external debt management strategy.

The final settlement was reached on Thursday following the transfer of $1b to the Abu Dhabi Fund for Development (ADFD), officially clearing the outstanding balance of the short-term financial support package provided by the Gulf ally.

Strengthening fiscal credibility

The final $1b payment follows a substantial $2.45b repayment made only last week, signaling a robust effort by the central bank to meet its international obligations on schedule.

Traditionally, these deposits have been rolled over annually to provide a cushion for Pakistan’s foreign exchange reserves. However, the decision to retire the full $3.45b debt demonstrates a pivot toward reducing reliance on temporary deposit inflows.

This move is expected to bolster Pakistan’s standing with international credit rating agencies and multilateral lenders by proving its capacity to manage large-scale capital outflows without destabilising the domestic economy.

Maintaining reserve stability

Despite the significant outflow of dollars, the State Bank remains optimistic about maintaining a stable reserve position as the current fiscal year draws to a close.

To mitigate the impact of the UAE repayment, the government has intensified efforts to diversify its funding sources, including the recent extension of a $3b deposit from Saudi Arabia and the successful issuance of a $500m Eurobond.

Analysts suggest that while the immediate liquidity has been tested, the move aligns with the broader objectives of the IMF-supported programme, which aims to bring foreign exchange reserves to a target of approximately $18b by June.