Federal government officials and sources within the State Bank of Pakistan (SBP) confirmed on Monday that the United Arab Emirates (UAE) has rolled over $2 billion in maturing debt for a one-month period. The extension comes as Islamabad continues high-level diplomatic efforts to secure more favorable long-term lending terms and a reduction in interest rates.
The United Arab Emirates has rolled over $2 billion in loans to Pakistan for just one month at a 6.5% interest rate, highlighting Islamabad’s continued dependence on short-term external funding to support its foreign exchange reserves.
According to reports, the UAE extended two… pic.twitter.com/zNLm3NeDMj
— Startup Pakistan (@PakStartup) February 3, 2026
Strategic One-Month Extension
The UAE rolled over two separate tranches of $1 billion each, which reached maturity on January 16 and January 22. While previous extensions have typically spanned one year, this thirty-day “bridge” rollover is intended to provide a window for further technical discussions regarding the tenor and the cost of the debt.
Pakistan is currently advocating for:
- Extended Tenor: A two-year rollover period to ensure medium-term stability.
- Reduced Interest Rates: A cut from the current 6.5% to approximately 3%, aligning with previous historical rates and Pakistan’s improving credit outlook.
IMF Program Compliance and Reserves
The $2 billion in UAE deposits constitutes a critical segment of Pakistan’s $16 billion in foreign exchange reserves. Under the current $7 billion IMF Extended Fund Facility (EFF), “friendly countries”—including the UAE, Saudi Arabia, and China—have committed to maintaining a combined $12.5 billion in cash deposits to ensure external sector stability through September 2025.
Prime Minister Shehbaz Sharif recently acknowledged the necessity of these deposits, noting that while central bank reserves have strengthened, the country remains focused on transitioning from debt dependency to export-led growth.
Economic Reform and Export Targets
To mitigate the pressure of external debt servicing, which currently costs approximately $130 million annually for the UAE debt alone, the federal government has announced several aggressive measures to bolster the industrial sector:
- Energy Subsidies: Lowering electricity prices for key industries to reduce the cost of doing business.
- Export Refinancing: Reducing interest rates for export-oriented sectors to bridge the trade gap.
- Growth Strategy: A roadmap to double national exports from $32 billion within the next three years to exit the cycle of IMF dependency.
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Looking Ahead
While foreign investment has faced challenges in the first half of the fiscal year, Pakistani officials remain optimistic that the upcoming discussions with UAE leadership will result in a multi-year extension. Such an agreement would significantly alleviate immediate pressure on the Rupee and solidify the country’s path toward sustainable economic recovery.
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