The existing $2 billion loan will be complemented by an additional $1 billion loan, according to a statement from Pakistan’s prime minister.
The UAE has pledged a US$1 billion loan to Pakistan and has also agreed to extend an existing US$2 billion loan to give the South Asian nation a boost in its economic crisis, it said the Office of the Prime Minister of Pakistan.
The announcement came after Pakistani Prime Minister Shehbaz Sharif held talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan in the capital Abu Dhabi on Thursday during his third visit to the Gulf state after taking office last April.
The two leaders “agreed to deepen investment cooperation, foster partnerships, and enable investment integration opportunities between the two countries,” according to a PMO statement.
Sharif has struggled to get the economy going again since taking office with the abrupt resignation of his first finance minister, Miftah Ismail, last September.
Islamabad is also seeking financial support from close allies like Saudi Arabia and China alongside the UAE as it negotiates the next tranche of International Monetary Fund (IMF) loans.
Ismail told Al Jazeera that the decision to renew the fund was “great news for Pakistan” and the announcement was seen by some analysts as much-needed relief for the country, which has kept its central bank’s foreign exchange reserves below 4.5 saw $ going back. Billions covering less than a month of imports.
Ammar Habib Khan, an Islamabad-based economist, said the additional funds would help Pakistan’s struggling economy on time.
On Wednesday, the World Bank lowered forecasts for gross domestic product (GDP) growth to 2%. The poor economic situation forced the government to take extreme measures such as the early closure of shopping malls and restaurants.
“This funding will help Pakistan manage its imports. However, more dollar injections are needed to get out of the crisis, which requires the continuation of the International Monetary Fund’s program,” he told Al Jazeera.
Pakistan is struggling to persuade the IMF to release the next tranche of $1.1 billion in loans, which have been on hold since September amid a standoff between the two sides.
Funding was conditional on the country agreeing to various terms from the lender, such as B. rising energy prices and a broadening of the tax base. Pakistan joined an IMF program in 2019 and the fund’s final tranche, valued at $1.17 billion, was deployed in August last year.
Some experts have warned of donor fatigue given Pakistan’s reliance on bilateral funds.
“It’s like giving money to a drug addict who promises to make amends but comes back demanding more money,” Asad Sayeed, an economist from the port city of Karachi, told Al Jazeera.
Saudi Arabia deposited $3 billion with the Central Bank of Pakistan in October, and there are reports that Saudi Crown Prince Mohammad bin Salman has asked the Saudi Fund for Development to consider increasing the deposit by $2 billion.
China remains Pakistan’s largest lender with $30 billion, or a third of its external debt.
“No choice but to accept the IMF program”
Sayeed, who works for the research firm Collective for Social Science Research, said Pakistan has run out of options and has no choice but to accept the IMF program.
According to central bank data, Pakistan will have to pay off more than $20 billion in debt over the next 12 months. A deal with the IMF could help unlock more bilateral aid.
Not entering the global lending program, Sayeed said, would create a situation with “unimaginable consequences.”
One of the risks was a default that would collapse the economy.
“Authorities have to ask themselves whether they’d rather see a massive burst of inflation hitting the population, or whether they want to end up in a situation where the country has no fuel, no legumes or all the things that we import. Our economy is dependent on imports and running out of dollars would create an unprecedented situation for us,” he warned.
The Pakistani government was reluctant to accept the IMF program because of harsh conditions, which included cutting subsidies, which could push inflation even higher.
Government data showed that Pakistan’s import bill for the last six months of 2022 was over US$30 billion, including over US$5 billion for petroleum products.
Pakistan is already grappling with the aftermath of last year’s devastating floods, which killed 1,700 people and cost billions of dollars.
At an international donor conference in Geneva last week, the country was able to secure more than 10 billion dollars for the reconstruction of the flood-hit country, mostly in the form of loans.
Sharif invited the President of the United Arab Emirates to a state visit to Pakistan, which was accepted.
The Prime Minister of Pakistan was due to meet the Prime Minister of the United Arab Emirates and the Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum.
He was also expected to hold meetings with Emirati businessmen and investors to discuss ways to boost bilateral trade between Pakistan and the UAE.
Pakistan’s new army chief, Gen. Syed Asim Munir, met with UAE President Al Nayhan two days ago as part of his week-long trip, which also included close allies Pakistan and Saudi Arabia.