UAE rolls over $2B loan as Pakistan's foreign reserves fall to record low of $4.3B

By Aamir Latif

KARACHI, Pakistan (AA) – The United Arab Emirates (UAE) has rolled over a $2 billion loan to a cash-strapped Pakistan that was payable over the next two months, in an attempt to shore up the country's depleting foreign reserves.

"Abu Dhabi Fund for Development (ADFD) has rolled over their deposit of $2 billion with State Bank of Pakistan (SBP), as discussed by (Premier Shehbaz Sharif) with His Highness the President of UAE during last week’s official visit," Finance Minister Ishaq Dar said in a late-night tweet on Wednesday.

“Long live Pak-UAE friendship!” he stated.

The oil-rich Gulf state agreed to roll over the deposit it made in 2019 for an unspecified period of time, and pledged to provide another $1 billion loan to Islamabad during Sharif's recent visit to Abu Dhabi.

The loan was scheduled to be paid off in February and March of this year, which would have depleted the country's already dwindling foreign reserves even further.

Currently, Islamabad's foreign reserves stand at $4.3 billion, a record low since 2014, forcing the government to slap strict control on imports, affecting the country's manufacturing sector.

The latest rollover, according to economists, would provide Islamabad an opportunity to rebuild its foreign exchange reserves, and revive a $6 billion International Monetary Fund (IMF) program, following a delay in the release of a $1.8 billion tranche.

The IMF has refused to release the tranche until Islamabad agrees to a slew of demands, including the imposition of additional taxes and the withdrawal of subsidies, primarily on petroleum products.

- Saudi assistance

Pakistan has been facing a serious cash crunch in recent months, making it difficult for the South Asian nuclear nation to pay off its foreign debts on time.

The country's current account deficit has contracted to $3.33 billion in the first half of the ongoing financial year, amid the melting down of the economy.

The recent super floods and torrential rains that inundated a third of the country last year caused a colossal loss of $30 billion to the country's already sputtering economy, which has been trying to recover from the shocks of the global coronavirus pandemic.

Aside from the UAE, a longtime ally, Saudi Arabia is also mulling over depositing another $3 billion with the SBP.

Riyadh, which is already providing oil on deferred payments, had also deposited $2 billion with the SBP in 2020 to underpin Islamabad's foreign reserves vault.