Pakistan will repay a $2 billion loan to the United Arab Emirates by the end of April 2026. This repayment follows a recent demand from the UAE for the immediate return of the funds. The move is part of a larger plan by Islamabad to clear $3.5 billion in debt to Abu Dhabi this month.[timesofindia+2]
UAE Demands Prompt Loan Return
The United Arab Emirates recently asked for the immediate return of the funds. Sources linked this demand to the ongoing situation in the Middle East, specifically following the US-Israel war on Iran.The $2 billion loan was originally provided to Pakistan to support its balance of payments.This amount was held as a safe deposit with the State Bank of Pakistan (SBP).[timesofindia+7]
Historically, the UAE rolled over this deposit annually.However, the terms changed in December 2025. The loan was first extended for one month, then for two months, with the latest extension set to expire on April 17.Pakistan has been paying approximately 6 percent interest on this amount.[timesofindia+10]
Broader Repayment Schedule
The $2 billion repayment due by April end is part of a larger $3.5 billion debt Pakistan owes the UAE this month.The government has outlined a three-part schedule to clear these dues. The first tranche of $450 million, which includes a loan dating back to 1996-97, was due on April 11.The $2 billion payment is scheduled for April 17, and a final $1 billion is due on April 23.[profit+8]
These repayments come alongside another significant obligation. Pakistan also faces a $1.3 billion Eurobond repayment due on April 8.This means Pakistan's total debt servicing for April is expected to reach around $4.8 billion.[profit+3]
Impact on Pakistan's Reserves
Pakistan's foreign exchange reserves stood at $21.2 billion in February 2026.By March 27, 2026, total reserves were $21.79 billion, with the State Bank of Pakistan holding $16.38 billion and commercial banks holding $5.41 billion.Other reports indicate total liquidated reserves were $21.407 billion in February 2026.[ceicdata+2]
Repaying the $3.5 billion to the UAE will reduce Pakistan's central bank reserves by an estimated 18 percent.This significant outflow could weaken Pakistan's external buffer and affect its ability to cover imports.Officials acknowledge that the repayment will significantly impact the country's foreign exchange reserves.However, government officials have stated that reserves remain "comfortable."[ground+4]
External Financing Needs
For the current fiscal year, Pakistan required rollovers or fresh support totaling approximately $12 billion in external deposits.This amount included $5 billion from Saudi Arabia, $4 billion from China, and $3 billion from the UAE.Under its $7 billion International Monetary Fund (IMF) program, the UAE, Saudi Arabia, and China had pledged to maintain $12.5 billion in deposits with the State Bank of Pakistan until the program concludes in September 2027.[timesofindia+10]
The decision to repay the UAE loan comes at a sensitive time for Pakistan. The country is currently engaged in an IMF program.Economic experts warn that repaying the funds without securing alternative financing could put additional pressure on the Pakistani rupee.It could also complicate ongoing efforts to stabilize the economy.[thestatesman+3]
Government Rationale and Future Outlook
A senior Pakistani official described the repayment as necessary to uphold "national dignity," despite potential economic strain.The Finance Ministry stated that the government remains committed to fulfilling all external obligations.Officials also indicated that the decision was driven by evolving bilateral considerations.The government aims to improve its standing with international lenders, including the IMF, by clearing outstanding liabilities.[ground+5]
Pakistan's total external debt and liabilities stood at $138 billion by December 2025.The country's external public debt, which is government debt, is approximately $92 billion.Pakistan is also struggling with falling exports and a sharp drop in foreign investment.[samaa+4]
Discussions are ongoing between Pakistan and the UAE about potentially converting a portion of the debt into investment.This could see some funds returning to Pakistan in the form of investments in energy and infrastructure.While the repayment process is moving ahead, these discussions signal a potential shift in the financial relationship between the two nations.[profit+5]
The government is closely monitoring external financial flows and is committed to maintaining stable foreign exchange reserves.[thediplomaticinsight]
