Pakistan Repays $3.45 Billion UAE Debt, Turns to Saudi Funds for Relief

Pakistan has repaid USD 3.45 billion in debt to the United Arab Emirates, completing a major financial obligation even as its economy remains under severe strain. The repayment, confirmed by the State Bank of Pakistan, was finalised on April 23, marking the end of deposits originally extended in 2019 to support the country’s fragile balance of payments.

However, the move does not signal economic recovery. Instead, it reflects a carefully managed financial balancing act , as Islamabad relied heavily on fresh external inflows to meet its obligations. Days before the repayment, Pakistan secured around USD 3 billion in financial assistance from Saudi Arabia, effectively using new funds to clear existing debt.

The urgency of repayment was driven by the UAE’s decision not to roll over the deposits this year. Amid rising geopolitical tensions in West Asia, particularly linked to the US–Israel–Iran conflict , the Gulf nation sought the immediate return of its funds. This marked a significant shift, as such facilities had routinely been extended in previous years, helping Pakistan avoid sudden outflows.

The development underscores Pakistan’s continued dependence on external partners and multilateral institutions. The country remains under a stabilisation programme backed by the International Monetary Fund, which is expected to release further funding in phases, subject to strict fiscal reforms. These include tax increases, energy price adjustments, and expenditure controls , measures that have already added to domestic economic pressures.

Economists warn that while the repayment helps preserve Pakistan’s international creditworthiness , it also highlights deeper vulnerabilities. The UAE deposits alone accounted for a significant share of the country’s foreign exchange reserves, and their repayment has tightened liquidity further. With reserves covering only a few months of imports, Pakistan remains exposed to external financing shocks , volatile energy prices, and limited access to global capital markets.

The repayment also follows Islamabad’s failure in March to secure a rollover of a similar USD 3.5 billion facility , the first such setback in seven years. Analysts say this raises concerns over the sustainability of Pakistan’s financing model, which relies on rolling over debt, securing bilateral support, and unlocking IMF tranches to stay afloat.

Despite these challenges, officials view the successful repayment as essential to maintaining investor confidence and ensuring continued support from key allies. By honouring its commitments, Pakistan aims to signal financial discipline and keep future funding channels open.

In essence, the latest development illustrates a broader reality: Pakistan is not emerging from crisis but managing it through a cycle of borrowing and repayment . While immediate default risks have eased, the country’s long-term stability will depend on structural reforms, export growth, and its ability to reduce reliance on external debt.