Pakistan under pressure after UAE demands $3bn repayment

April 7, 2026 (MLN): Pakistan’s economy is under renewed strain after the United Arab Emirates (UAE) declined to roll over a $3bn loan, marking the first time in seven years that such an agreement was not reached, according to Bloomberg.

The move comes at a critical juncture as soaring global oil prices continue to pressure the country’s foreign exchange reserves.

The $3bn repayment represents roughly 18% of Pakistan’s foreign currency reserves, putting significant stress on the nation’s external buffers and raising concerns over the stability of the Pakistani rupee.

As of March 27, the State Bank of Pakistan (SBP) held $16.4bn in reserves, sufficient to cover only three months of imports.

The reason behind the UAE’s decision to call in the loan remains unclear. Pakistan’s Ministry of Foreign Affairs described it as a “routine financial transaction” on April 4, downplaying speculation about potential political implications.

Local reports suggest negotiations over the rollover terms may have broken down.

In previous years, Pakistan relied on financial support from the International Monetary Fund (IMF) and friendly nations such as the UAE, China, and Saudi Arabia to stabilize its economy.

These inflows helped the country rebuild reserves and maintain the currency, which had been trading in a narrow range of 278–282 per dollar before the Iran conflict escalated.

Currently, the rupee has remained largely stable since early March, while the benchmark KSE-100 Index has declined by 15%, reflecting broader market pressures.

SBP may need to adopt stringent measures, including import restrictions, higher interest rates, or additional borrowing from commercial banks, to manage the reserve outflow.

Compounding the challenge, Pakistan is due to make a $1.3bn bond payment to international investors this month and is awaiting the next $1.2bn tranche from the IMF.

Failure to secure the UAE rollover, once standard practice with Pakistan’s allies, signals a possible shift in Abu Dhabi’s financial stance, coinciding with Pakistan’s closer ties with Saudi Arabia.

Sajid Amin, deputy executive director at the Sustainable Development Policy Institute (SDPI), said that the UAE’s support was crucial when Pakistan was struggling to meet minimum financing requirements under the IMF program.

He added that the government likely chose to repay when a long-term rollover could not be secured, despite higher costs of 6.5%, and that geopolitical factors may also play a role.

Despite the repayment, UAE companies continue to invest in Pakistan.

The Abu Dhabi-based International Holding Co acquired a stake in First Women Bank Ltd, while AD Ports Group signed a 25-year concession for cargo operations with Karachi Port Trust in 2024.

Pakistan has also explored offering its airports to Middle Eastern investors.

Earlier efforts to convert some of the UAE debt into equity, including investments in Fauji Foundation subsidiaries, have been part of Pakistan’s broader strategy to manage external liabilities.

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