Pakistan’s external financing gap likely to expand after $2bn repayment to UAE
- On IMF staff-level deal, June 2026 forex reserve target dropped to $17.5bn.
- External financing gap estimated at $460m, per top official sources.
- $3.7bn deposits from UAE, Kuwait were to be rolled over in current FY.
Pakistan’s external financing gap is likely to expand after the government decided to repay $2 billion in deposits to the United Arab Emirates (UAE), along with a 6% interest payment, this month.
As a result, Islamabad will need to either manage the increased financing gap on its own or persuade the International Monetary Fund (IMF) to adjust the foreign exchange reserves held by the State Bank of Pakistan (SBP) at the end of June 2026, The News reported.
On the eve of striking a staff-level agreement with the IMF under a $7bn Extended Fund Facility programme, the foreign exchange reserves target for June 2026 was revised downward from $17.8bn to $17.5bn held by the SBP.
“The external financing gap was then estimated at around $460 million, based on overall dollar inflows and outflows in FY26,” top official sources confirmed to The News.
It was assessed that deposits of $3.7bn from the UAE and Kuwait would be rolled over in the ongoing fiscal year, but the latest development shows that Pakistan is all set to repay $2bn in deposits to the UAE around mid-April 2026. It is assumed that the remaining $1bn might be paid in June or July 2026 on its maturity date.
Given the broader agreement with the IMF, the external financing gap would widen further, so the overall gap could reach $2.46bn plus a 6% interest payment. When contacted, one senior official told The News that Pakistan is engaged at the highest diplomatic level to mediate in the geopolitical tensions.
Regarding the maturity of deposits, he said it is a matter of dignity to return the due amount to the lender with a bundle of thanks. He added that options are available and will be explored, but these cannot be disclosed without confirmation.
The official further stated that Pakistan is in a comfortable position to pay back its external obligations. While this may result in some temporary reduction in foreign exchange reserves, it would not pose a challenge like the country experienced in the past on multiple occasions, such as after the nuclear detonation in 1998 and many other occasions.
The official said the IMF would be convinced that the eruption of war has put pressure on the external front, and they are hopeful the Washington-based global lender would understand the situation and show a lenient attitude toward Pakistan.
When contacted, the IMF Resident Chief in Pakistan, Mahir Binci, said in a brief reply that they will follow up on this issue.
Meanwhile, in an official statement on Saturday, the Ministry of Foreign Affairs categorically rejected recent misleading and unfounded commentary regarding financial deposits from the UAE held with the SBP.
It said that the deposits demonstrated “the UAE’s strong support for Pakistan’s economic stability and prosperity”, it said in a statement.
The FO clarified that the government, through the SBP, was returning the matured deposits to the UAE pursuant to mutually agreed terms.
“This is a routine financial transaction, and any attempt to portray it otherwise is erroneous and misleading,” it said.
The FO maintained that Islamabad and Abu Dhabi shared a “longstanding, fraternal partnership” built on trust and strategic cooperation across trade, investment, defence, and people-to-people ties.
The relationship, it said, has stood the test of time and has grown stronger with each passing year.
The Foreign Office said Pakistanis cherished the late Sheikh Zayed bin Sultan Al Nahyan’s key role in strengthening Pakistan-UAE ties and his deep affection for the country.
Pakistan remained fully committed to further strengthening its ties with the UAE for a shared, prosperous future, it added.
