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UAE to loan $1bn and roll over another $2bn to Pakistan

UAE Pakistan WAM
President Mohamed bin Zayed Al Nahyan with Pakistani Prime Minister Shehbaz Sharif, who is currently on a working visit to the UAE
  • Pakistan central bank’s foreign reserves drop to $4.3bn
  • Reserves at critical level to cover just three weeks of imports
  • UAE’s financial support provides respite for broken Pakistani economy

The UAE has agreed to lend $1 billion to Pakistan and roll over an existing $2 billion loan, Pakistan’s information minister said, as the country’s central bank foreign reserves fell to just three weeks’ worth of imports.

The UAE’s financial support offered some respite to the South Asian nation of 220 million, which is still reeling from devastating nationwide floods that have caused more than $30 billion of damage.

The loan announcements came as Pakistan’s prime minister, Shehbaz Sharif, kicked off a two-day visit to the UAE.

“This support will help us tide over economic difficulties,” Sharif said in a statement.

He met UAE President Sheikh Mohammed bin Zayed Al-Nahyan, and was due to discuss business and economic opportunities with other officials and business leaders, information minister Marriyum Aurangzeb said.

The International Monetary Fund’s (IMF) ninth review to clear the release of a further $1.1 billion tranche of funds to Pakistan has been pending since September, so external financing is crucial for the country’s broken economy.

Foreign exchange reserves held by State Bank of Pakistan (SBP) fell to a critical level of $4.3 billion, the bank said, barely enough for three weeks of imports.

Net foreign exchange reserves held by commercial banks stood at $5.8 billion, and total liquid reserves at $10.1 billion, the bank added.

The drop was due to external debt repayments, it said.

Despite recent compression measures by the government, Pakistan’s import bill for goods was $5.1 billion per month in both November and December, according to the country’s statistics bureau.

Pakistan’s main imports are critical energy-related fuels.

The IMF and Pakistan signed a $6 billion bailout in 2019 that was topped up with another $1 billion earlier this year.

The lender wants Pakistan to implement fiscal measures to meet budgetary targets, introduce reforms in power and energy sectors and review subsidies to farming and export sectors.

IMF officials met Pakistan’s finance minister, Ishaq Dar, on Monday on the sidelines of a Geneva climate conference at which more than $9 billion of pledges were made for flood recovery.

Dar said on Wednesday Pakistan was already working on a fiscal contingency plan to shed energy sector debt and review the subsidies.

Long-time ally Saudi Arabia has said it is also considering investing $10 billion and increasing its deposits in the country’s central bank from $3 billion to $5 billion.