ISLAMABAD — Pakistan has urgently requested the United Arab Emirates to roll over $2.5 billion in maturing debt for two years while slashing interest rates by nearly half, a move that underscores the nation’s precarious financial position as it struggles to attract foreign investment amid mounting political instability and systemic governance failures, according to The Express Tribune.
The request, made during the UAE president’s recent visit to Islamabad, encompasses $2 billion in loans due within days and a decades-old $450 million obligation from 1996-97 that continues accruing 6.5% interest. Prime Minister Shehbaz Sharif confirmed the UAE’s agreement to the rollover, though critical details regarding the extension period and revised interest terms remain undisclosed.
Pakistan’s debt negotiations coincide with sobering assessments from international institutions about the country’s investment climate. The World Bank informed Finance Minister Muhammad Aurangzeb on Thursday that “investment levels remain below the Country Partnership Framework target,” casting doubt on the materialization of a previously approved $20 billion, ten year lending package.
The investment deficit reflects deeper structural problems plaguing Pakistan’s economy. International observers, including BBC and Bloomberg, have documented a growing exodus of prominent multinational corporations, citing an increasingly hostile business environment characterized by the absence of an independent judiciary, escalating energy costs, persistent political turmoil, and bureaucratic obstacles to profit repatriation.
The lack of judicial independence has emerged as a particularly critical impediment, undermining contract enforcement and property rights that form the foundation of investor confidence. Combined with soaring electricity prices, which the government hopes to reduce from current levels to approximately 8-9 cents per kilowatt-hour through a proposed $36 billion energy sector debt refinancing, these systemic failures have created an environment where risk far outweighs potential returns.
Pakistan’s external sector stability now depends almost entirely on rolling over existing loans and securing fresh International Monetary Fund financing, with the current IMF program concluding in September. This dependency has intensified as exports declined nearly 9% to $15.2 billion during the first half of the fiscal year, contradicting official rhetoric about economic progress.
The contradiction between official pronouncements and ground realities has become increasingly stark. While political and military leadership maintains that Pakistan is advancing rapidly, international assessments paint a far bleaker picture of economic stagnation and industrial deterioration. Prime Minister Sharif has formed a committee to explore doubling exports from $32 billion to $63 billion within four years, “a target that appears increasingly aspirational given current trajectories”.
Deputy Prime Minister Ishaq Dar revealed Wednesday that Pakistan owes $12 billion to friendly nations, including $5 billion to Saudi Arabia, $3 billion to the UAE, and $4 billion to China. The UAE previously charged 3% interest when extending $2 billion in 2018, but raised rates to 6.5% last year; a burden Pakistan now seeks to halve, citing improved credit ratings and lower global interest rates.
The World Bank has proposed a results based approach with clearly defined policy milestones and performance indicators, emphasizing the urgent need to translate recent macroeconomic stability into sustained growth, higher investment, and job creation. However, without addressing fundamental governance failures and political instability, Pakistan’s ability to meet these benchmarks remains deeply uncertain, leaving the nation’s economic future precariously balanced between diplomatic assurances and deteriorating fiscal reality.
