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What is the story about?
In a significant policy shift aimed at redefining its financial relationship with the United Arab Emirates (UAE), Pakistan has decided to repay its entire $3.5 billion debt to Abu Dhabi within the current month.
The move comes amid growing uncertainty over the future of the debt, which the UAE had recently placed under a short-term, month-to-month rollover arrangement, according to exclusive information provided by top sources in Islamabad to CNN-News18.
A senior Pakistani official described the action as a cost the country was prepared to pay to maintain ‘national dignity,’ even though it will drastically reduce foreign exchange reserves.
“The amount will be returned as soon as possible,” the official said, noting that “national dignity could not be compromised for financial considerations”, reported Dawn.
As Pakistan struggles with the economic consequences of the prolonged crisis in West Asia, the move represents a historic break from the country's long-standing reliance on ongoing extensions from Gulf partners.
The UAE’s revised lending approach was a key factor behind the repayment plan. Unlike previous multi-year rollovers, the latest extension was limited to just one month, resulting in an unsustainable cycle of ‘financial cliffhangers’.
The funds were originally provided by the UAE in 2019 as part of external financial assistance aimed at supporting Pakistan’s balance of payments.
As per the senior official, the recent decision has removed longstanding uncertainty surrounding the deposits managed through the Abu Dhabi Fund for Development. These funds had been repeatedly rolled over since 2019, although in recent months, the extensions had been reduced to as short as one month, indicating growing concern from the Emirati side over continuing the arrangement.
As part of its ongoing programme with the International Monetary Fund (IMF), Pakistan is required to secure approximately $12.5 billion in rollovers from key partners, including China, Saudi Arabia, and the UAE, to sustain its foreign exchange reserves and meet external financing requirements. Within this framework, UAE deposits have played a crucial role.
According to the latest data, Pakistan’s central bank reserves stand at around $16.3 billion. A repayment of $3 billion would lead to an estimated 18% decline in reserves, significantly impacting the country’s external buffer and its capacity to cover imports.
While officials acknowledged that returning the funds would affect reserve levels, they emphasised that the decision was made considering evolving bilateral dynamics and the UAE’s request for immediate repayment.
Economic experts have cautioned that the outflow could place additional pressure on the Pakistani rupee and create challenges for the country’s commitments under the IMF programme, particularly if not balanced by fresh inflows. However, no immediate plans for replacement financing have been disclosed.
Meanwhile, the Finance Ministry, in a statement shared on X, noted that it is “actively monitoring and managing Pakistan’s external financial flows to maintain stable foreign exchange reserves.”
It reaffirmed that the government remains committed to meeting all its external financial obligations.
In a notable development, Pakistan will also repay a $450 million loan dating back to 1996–97. Originally issued for a one-year term, the loan had been repeatedly extended for nearly three decades.
According to News18, officials confirmed that this amount is expected to be cleared in the coming week, signalling the government’s intent to address longstanding financial liabilities.
The repayment comes amid escalating regional tensions, with the United Arab Emirates increasingly drawn into the Iran-Israel conflict.
The move comes amid growing uncertainty over the future of the debt, which the UAE had recently placed under a short-term, month-to-month rollover arrangement, according to exclusive information provided by top sources in Islamabad to CNN-News18.
A senior Pakistani official described the action as a cost the country was prepared to pay to maintain ‘national dignity,’ even though it will drastically reduce foreign exchange reserves.
“The amount will be returned as soon as possible,” the official said, noting that “national dignity could not be compromised for financial considerations”, reported Dawn.
As Pakistan struggles with the economic consequences of the prolonged crisis in West Asia, the move represents a historic break from the country's long-standing reliance on ongoing extensions from Gulf partners.
The UAE’s revised lending approach was a key factor behind the repayment plan. Unlike previous multi-year rollovers, the latest extension was limited to just one month, resulting in an unsustainable cycle of ‘financial cliffhangers’.
The funds were originally provided by the UAE in 2019 as part of external financial assistance aimed at supporting Pakistan’s balance of payments.
As per the senior official, the recent decision has removed longstanding uncertainty surrounding the deposits managed through the Abu Dhabi Fund for Development. These funds had been repeatedly rolled over since 2019, although in recent months, the extensions had been reduced to as short as one month, indicating growing concern from the Emirati side over continuing the arrangement.
As part of its ongoing programme with the International Monetary Fund (IMF), Pakistan is required to secure approximately $12.5 billion in rollovers from key partners, including China, Saudi Arabia, and the UAE, to sustain its foreign exchange reserves and meet external financing requirements. Within this framework, UAE deposits have played a crucial role.
According to the latest data, Pakistan’s central bank reserves stand at around $16.3 billion. A repayment of $3 billion would lead to an estimated 18% decline in reserves, significantly impacting the country’s external buffer and its capacity to cover imports.
While officials acknowledged that returning the funds would affect reserve levels, they emphasised that the decision was made considering evolving bilateral dynamics and the UAE’s request for immediate repayment.
Economic experts have cautioned that the outflow could place additional pressure on the Pakistani rupee and create challenges for the country’s commitments under the IMF programme, particularly if not balanced by fresh inflows. However, no immediate plans for replacement financing have been disclosed.
Meanwhile, the Finance Ministry, in a statement shared on X, noted that it is “actively monitoring and managing Pakistan’s external financial flows to maintain stable foreign exchange reserves.”
In
response to speculation and commentary in some section of the media regarding the Government of Pakistan’s external flows, it may be noted that Ministry of Finance is continuously monitoring and managing Pakistan’s external flows in order to ensure stable foreign exchange…
— Ministry of Finance, Government of Pakistan (@Financegovpk) April 3, 2026
It reaffirmed that the government remains committed to meeting all its external financial obligations.
In a notable development, Pakistan will also repay a $450 million loan dating back to 1996–97. Originally issued for a one-year term, the loan had been repeatedly extended for nearly three decades.
According to News18, officials confirmed that this amount is expected to be cleared in the coming week, signalling the government’s intent to address longstanding financial liabilities.
The repayment comes amid escalating regional tensions, with the United Arab Emirates increasingly drawn into the Iran-Israel conflict.
