Since July 22, numerous unauthorised exchange outlets have been closed after the military intelligence agency summoned currency dealers to address the rising dollar rate in the open market. photo: file
ISLAMABAD:
Pakistan on Saturday paid back $2 billion debt of the United Arab Emirates after seven years, further lessening its dependency on the Gulf nation whose support allowed Islamabad to sail-through two economic crises of 2018 and 2023.
Pakistan returned the $2 billion UAE debt by taking a new debt from Saudi Arabia, bringing the total repayments to Abu Dhabi this week at $2.5 billion, according to the government officials.
The finance ministry had not factored in these repayments till the end of last month and had assured the International Monetary Fund that its external financing requirements were fully met on the back of rollovers by China, Saudi Arabia and the UAE, showed the fresh details.
Former prime minister Imran Khan’s government had taken the $2 billion loan in 2018 to sustain the foreign exchange reserves that were on the downward trajectory due to a delay in reaching a deal with the IMF. Another $450 million UAE loan that Islamabad paid early this week had been taken in 1996-97 for one-year period, which Pakistan returned after 30 years.
There would not be any negative impact on the foreign exchange reserves that are hovering around $15 billion, as the debt is being repaid by contracting new debt.
The finance ministry officials said that Pakistan would pay the remaining $1 billion UAE debt on coming Thursday. This would also be settled by availing another $1 billion Saudi loan. The Kingdom will disburse another loan tranche next week.
Saudi Arabia has also extended the existing $5 billion cash deposit-based debt for two years, said the officials. Pakistan was earlier paying 4% interest rate on Saudi loans and it is not clear whether the extension and the new $3 billion debt is given at the existing or the new rates.
The UAE’s decision to demand its money back had created a $3.5 billion hole. The finance ministry officials said that the government had not factored in the UAE repayment and it last month assured the IMF that “based on existing financing commitments from bilateral and multilateral partners, the (IMF) programme is fully financed for the next 12 months”.
It had further assured the IMF in March that as committed at the outset of the Extended Fund Facility, Pakistan’s bilateral partners will also continue rolling over short-term claims, including loans, swaps and deposits, for the duration of the programme.
Under the $7 billion IMF programme, the UAE, Saudi Arabia and China had committed to maintaining their combined $12.5 billion in cash deposits with the SBP at least until the programme expires in September next year.
The Express Tribune had reported in January that the UAE rolled over $2 billion for one month. Pakistan had sought a two-year rollover and an interest rate of around 3%. But the UAE rolled it over then at the old terms of 6.5% interest rate.
In December, State Bank of Pakistan Governor Jameel Ahmad requested the UAE government to roll over the 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 Economista prestigious London-based publication, wrote on Thursday that though Pakistan’s economic buffers are thin, its diplomatic prowess will help it through the latest crisis. The magazine further wrote that turning geopolitical clout into cash risks perpetuating a cycle of lackluster reform efforts, poor growth and eventual bail-outs.
The sources said Saudi Arabia is also going to extend the $1.2 billion annual oil facility on deferred payments, which is expiring this month. Islamabad is paying a 6% interest rate on the oil facility that it is using to buy crude oil from the kingdom.
Pakistan on Friday raised a $500 million debt at 7% interest rate against Eurobonds purchased by the Standard Chartered Bank. The government did not offer the Eurobonds to overseas general public and instead raised the debt through institutional investors.
Pakistan is required to report all the foreign debt related transactions, valued over $3 million, to the IMF.
The documents showed that the central bank and the finance ministry report the external disbursements from the Asian Development Bank, Islamic Development Bank, World Bank, bilateral oil facilities, China, Saudi Arabia, UAE, external bond placements and other commercial borrowings, including foreign currency financing extended by local branches of foreign banks, and any proceeds from sales of state-owned assets to official bilateral partners, sovereign wealth funds to the IMF.
Islamabad regularly provides a list of all disbursements and amortization payments for external budget financing and external grants, including date of the transaction, foreign currency amount, exchange rate applied, rupee amount credited to the IMF.