The United Arab Emirates has approved a one-month rollover of a $2 billion loan to Pakistan, underscoring Islamabad’s continued dependence on short-term external support to stabilize its foreign exchange reserves. The UAE loan rollover carries an interest rate of 6.5 percent, reflecting tighter global financial conditions and ongoing negotiations between the two countries.

Short-Term Extension Signals Ongoing Talks

According to officials familiar with the matter, the loan rollover covers two separate $1 billion facilities that matured in mid-January. Instead of the usual one-year extension, Abu Dhabi granted only a one-month rollover to allow both sides to continue discussions on maturity and pricing. Pakistan is seeking a longer two-year extension and a reduction in the interest rate to around 3 percent.

Departure From Past Rollover Practice

Historically, the UAE has rolled over its deposits and loans to Pakistan on an annual basis. The shorter loan rollover this time signals a more cautious approach as negotiations continue. Officials say clarity on the final tenor and cost of the debt is expected in the coming days, depending on progress in talks.

IMF Program Adds Regional Support Framework

Under Pakistan’s $7 billion IMF program, the UAE, Saudi Arabia, and China have committed to maintaining a combined $12.5 billion in deposits at the State Bank of Pakistan through September next year. Within this framework, the UAE loan rollover remains a critical pillar supporting confidence in Pakistan’s external financing position.

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Impact on Foreign Exchange Reserves

The $2 billion UAE facility makes up a substantial share of Pakistan’s roughly $16 billion in foreign exchange reserves, making the UAE loan rollover essential for short-term liquidity management. At the current interest rate, the loan costs Pakistan approximately $130 million annually, adding pressure to the country’s external account.

History of Repeated Rollovers

Pakistan has relied on the UAE loan rollover mechanism repeatedly since first receiving the $2 billion facility in 2018. In 2023, Islamabad secured an additional $1 billion loan to meet IMF financing conditions, further increasing its dependence on rollover arrangements from friendly countries.

Pakistan Pushes for Lower Interest Rate

Initially, the UAE charged around 3 percent interest, but the rate was raised to 6.5 percent last year amid global tightening. Pakistani officials argue that improvements in macroeconomic stability, easing inflation, and a better credit outlook justify a lower rate. Reducing the cost of the UAE loan rollover has become a key priority for policymakers aiming to ease debt-servicing pressure.