Allows time for discussions on tenor, interest rate; Pakistan seeks a 2 year rollover, an interest of 3%
ISLAMABAD:
The United Arab Emirates (UAE) has rolled over $2 billion in debt for one month at the existing interest rate of 6.5%, as Pakistan continues to hope for a better deal from the Gulf nation to avoid pressure on its foreign exchange reserves, federal government officials said on Monday.
Highly placed sources in the federal government and the central bank told The Express Tribune that the UAE rolled over two loans of $1 billion each, which matured on January 16 and 22. They said the debt was rolled over for one month to allow time for further discussions on the tenor and interest rate. Pakistan seeks a two-year rollover and an interest rate of around 3%.
A State Bank of Pakistan (SBP) spokesperson did not respond to a request for confirmation . The Finance Ministry, which is responsible for meeting external financing requirements to the satisfaction of the International Monetary Fund (IMF), also did not reply to queries.
The officials said that another request was being made to roll over the debt, as its repayment would create a financing gap that would need to be filled from other sources.
Under the $7 billion IMF programme, the UAE, Saudi Arabia and China have committed to maintaining their combined $12.5 billion in cash deposits with the SBP at least until the programme expires in September next year.
However, this is the first time the UAE has extended the debt repayment period by only one month, unlike the previous practice of granting one-year extensions. Officials said the situation regarding the tenor and maturity of the debt would become clearer in the coming days.
In December, SBP Governor Jameel Ahmad had requested the UAE government to roll over $2.5 billion in debt for two years and cut the interest rate by almost half.
Subsequently, Prime Minister Shehbaz Sharif also requested the UAE president to extend the repayment period. The prime minister said the UAE had agreed to roll over the debt, but did not provide further details.
A central bank source said Pakistan had sought a two-year extension and a reduction in the interest rate by more than half.
The UAE provided $2 billion to Pakistan in 2018 for one year, but Pakistan was unable to repay the amount and has sought rollovers annually since then. Later, the UAE extended another loan of $1 billion in 2023 to help Pakistan meet external financing requirements for an IMF bailout.
The $2 billion debt forms part of Pakistan’s foreign exchange reserves of $16 billion. Pakistan is paying about $130 million annually in interest on the UAE debt at current rates.
Addressing leading exporters and industrialists last week, Prime Minister Shehbaz Sharif acknowledged that central bank reserves had increased, but said this was largely due to $12 billion in cash deposits from friendly countries.
He also said that when he travelled the world seeking financial assistance, he felt embarrassed. “Our self-respect suffers greatly when we take on debt,” he said, adding that such countries sometimes ask for concessions in return and “we cannot say no to many things they want us to do”.
The government is struggling to boost exports, which have fallen nearly 7% to $18.1 billion during the first seven months of the current fiscal year. The prime minister has announced a reduction in interest rates for export refinancing schemes and lowered electricity prices for industries to reduce the overall cost of doing business.
According to Musadaq Zulqarnain, one of Pakistan’s largest exporters, these measures would help reduce overall costs by about 2%.
The government is also struggling to formulate a viable plan to double exports from $32 billion over the next three years to exit the IMF programme. Foreign investment has failed to pick up despite efforts and instead fell by 47% during the first half of the fiscal year.
In 2018, the UAE charged an interest rate of 3% on the debt, but last year increased it to 6.5%. Pakistan has requested the UAE to reduce the rate to around 3%, citing improvements in its credit rating and lower global interest rates.
Pakistan’s external sector stability remains heavily dependent on the rollover of foreign loans and securing fresh financing from the IMF and the World Bank.
