KARACHI: Pakistan welcomed on Tuesday an extension of the repayment period of a $2 billion “aid loan” from the Abu Dhabi Fund of the United Arab Emirates.

Pakistan sought financial assistance from the UAE and Saudi Arabia after Prime Minister Imran Khan won the 2018 general elections, as the country faced a significant balance of payment crisis when the two Arab states came to its rescue and shored up its foreign currency reserves.

The United Arab Emirates had earlier set April 19, 2021 as the repayment deadline.

The decision of its extension was conveyed to Pakistani Foreign Minister Shah Mahmood Qureshi by his UAE counterpart Sheikh Abdullah bin Zayed Al-Nahyan during a meeting in Abu Dhabi. Qureshi thanked his host for the “goodwill gesture” and described it as a sign of growing bilateral relations between the two countries.

“We greatly appreciate the UAE’s continued support and cooperation. The UAE’s decision to roll-over the USD 2 billion deposit by the Abu Dhabi Fund, conveyed during Foreign Minister Shah Mahmood Qureshi’s just concluded visit to the UAE is yet another manifestation of the close cooperative relations between the two countries,” Pakistan’s foreign office spokesperson, Zahid Hafeez Chaudhri, said in a statement.

Experts say that had the deadline not been extended it would have put the country’s foreign exchange reserves under pressure.

“Pakistan had to repay $2 billion to the UAE this year which would have put pressure on our foreign exchange reserves,” senior economist Muzzamil Aslam told Arab News. “This rollover will help the country maintain its reserves at $23 billion.”

“The financial assistance Pakistan received from the UAE in 2019 made it possible for the country to meet its international obligations,” Aslam said.

He added that coupled with an upward trend in remittance inflows from Saudi Arabia and the UAE, this measure would further strengthen investor confidence and improve the country’s ratings to produce better macroeconomic results in the coming days.

Pakistan needs $25 billion in long term financing during the April 2021 to March 2022 period, according to recently released documents by the International Monetary Fund. The country needs about $17 billion to amortize debt to multilateral and bilateral official and commercial creditors.

To narrow the financing gap, Pakistan has secured rescheduling commitments from bilateral and multilateral partners, including $10.8 billion from China, $2 billion from the UAE, $2.8 billion from the World Bank, $1.1 billion from the Asian Development Bank and $1 billion from the Islamic Development Bank.

Crucially, key bilateral creditors have maintained their exposure to Pakistan in line with program financing commitments.

Pakistan has also benefitted from the temporary suspension of debt service to official bilateral creditors provided under the G20 Debt Service Suspension Initiative.