Amidst the increasing tension between Iran and Israel, the United Arab Emirates (UAE) has given a major economic blow to Pakistan. UAE has demanded Pakistan to immediately return its loan of 3.5 billion dollars i.e. about Rs 29 thousand crores. This decision has come at a time when Pakistan is already struggling with poverty and has a huge shortage of foreign exchange reserves. After this payment, Pakistan’s economic condition is likely to worsen further.
Why did UAE suddenly demand loan repayment?
According to reports, this step of UAE is being linked to Pakistan’s increasing closeness and strategic agreements with Saudi Arabia. UAE has asked for its money back amid changing circumstances and security concerns in the Gulf region. Pakistan was in talks with UAE to convert this loan into investment, but at present it has not got success.
Increase in interest rate: Last year itself, UAE had increased the interest rate on loans from 3 percent to 6.5 percent.
Old Debt: Pakistan has still not repaid the loan of $450 million taken in 1996-97.
Time Limit: The UAE had extended the loan maturing in January by only one month.
What will be its impact on Pakistan’s treasury?
The Central Bank of Pakistan (SBP) currently has foreign exchange reserves of about $16.3 billion. If Pakistan returns more than $3 billion to the UAE, its reserves will directly decline by a massive 18 percent. This will greatly weaken the country’s ability to purchase essential goods from abroad. Apart from this, Pakistan also has to pay Eurobonds worth $1.3 billion in the month of April itself, which may deepen the crisis.
Details Important Information Total amount sought by UAE $3.5 billion Pakistan’s total foreign reserves $16.3 billion Potential decline in reserves 18 percent Eurobond payment due in April $1.3 billion Current interest rate 6.5 percent