Move Signals Shift in Financial Ties, Pressures Forex Reserves
April 4, 2026: Pakistan has decided to repay a $3.5 billion loan to the United Arab Emirates after the Gulf nation sought immediate settlement, marking a notable shift in bilateral financial engagement. A senior cabinet minister described the UAE as a “brotherly country” but emphasised that “national dignity could not be compromised.” While repayment is underway, officials indicated that discussions are ongoing to potentially convert part of the amount into investment.
The development follows months of tightening financial terms, with the UAE opting for short-term rollovers instead of longer extensions sought by Islamabad. Earlier this year, two $1 billion loans were rolled over for just one month at a higher interest rate of 6.5%, compared to Pakistan’s request for longer tenures at lower rates. Analysts believe ongoing regional tensions, particularly involving Iran and the wider West Asia conflict, may have influenced the UAE’s decision to seek full repayment.
The move adds pressure on Pakistan’s commitments under its $7 billion programme with the International Monetary Fund, which requires securing significant external financing support. With foreign exchange reserves at around $16.3 billion, the repayment could reduce reserves by nearly 18%, impacting the country’s economic stability. Prime Minister Shehbaz Sharif recently acknowledged the strain of foreign borrowing, stating that reliance on loans had forced difficult compromises, signalling a broader shift in Pakistan’s economic narrative.