ISLAMABAD: The United Arab Emirates has confirmed financial support of $1 billion to Pakistan, the South Asian nation’s finance minister said on Friday, removing a key hurdle to securing a much-awaited bailout tranche from the International Monetary Fund (IMF).
The commitment is one of the IMF’s last requirements before approving a staff-level pact to release a tranche of $1.1 billion, delayed for months, that is crucial for Pakistan to resolve an acute balance of payments crisis.
“The State Bank of Pakistan is now engaged for needful documentation for taking the said deposit from UAE authorities,” Finance Minister Ishaq Dar said on Twitter, referring to the central bank.
The pledge makes the UAE the third country, after Saudi Arabia and longtime ally China, to come to Pakistan’s assistance, as external financing is needed to fully fund the balance of payments gap for the fiscal year that ends in June.
“The UAE deal should be helpful because the IMF has been saying Pakistan should secure financing from ‘friendly’ nations,” said Seaport Global EM credit analyst Himanshu Porwal.
“It is still far from over though. The IMF is saying that they (Pakistan) are in breach of certain targets. The fiscal deficit for example is seen peaking at around 8.3 percent (of GDP), so almost double what they were expecting,” he added.
Pakistan’s bonds, which have slumped nearly 70 percent over the last year as the country’s troubles have mounted, climbed for a second day running on the confirmation. The rise was almost 5 percent for its bond with closest payment date – April 15 next year – taking it to almost 50 cents in the dollar, compared to 46 cents a few days ago.
On Thursday, the IMF’s managing director, Kristalina Georgieva, said the fund was also in talks with nations friendly to Pakistan to secure financial assurances vital for the program.
Last week, Saudi Arabia also told the IMF it would provide financing of $2 billion to Pakistan.
Pakistan’s foreign exchange reserves have fallen to cover barely a month of imports after the IMF funding stalled in November, hit by snags over fiscal policy adjustments after officials of the lender visited Islamabad in February for talks.
They formed part of a ninth review exercise on a bailout package of $6.5 billion agreed in 2019 whose resumption is critical for Pakistan to avoid risking default on external payment obligations.
POLICY AND FISCAL MEASURES
Pakistan had to complete actions demanded by the IMF, such as reversing subsidies in its power, export and farming sectors, hikes in the prices of energy and fuel, and a permanent power surcharge, among other measures.
These steps included jacking up its key policy rate to an all-time high of 21 percent, a market-based exchange rate, arranging for the external financing, and raising more than 170 billion rupees ($613 million) in new taxes.
The fiscal adjustments have already fueled Pakistan’s highest inflation ever, which climbed in March to more than 35 percent on the year.
A final issue to be resolved is a fuel pricing scheme meant to bring relief to Pakistan’s lower middle class and poor from crippling inflation. The IMF has asked how it will be funded.
The IMF program will disburse another tranche of $1.4 billion to Pakistan before it concludes in June.
Funds from the lender will also unlock other bilateral and multilateral financing for the cash-strapped country.
Neighboring China has rolled over $2 billion and refinanced another $1.3 billion in recent weeks.
On Friday, Pakistan’s central bank is set to receive a third and final disbursement of $300 million from the refinancing by the Industrial and Commercial Bank of China, Dar added.
Program loans from other multilateral agencies await completion of the IMF review, central bank governor Jameel Ahmad told investors in Washington at the spring meetings of the lender and the World Bank.
Measures such as a hike of 1,400 basis points in interest rates over the last 18 months have put the nation of 220 million on a path to macroeconomic stability, added Ahmad, who hoped for inflation to start decelerating over the next few months.
The government is pursuing a contractionary fiscal policy, with the primary balance in surplus so far compared to a deficit last year, he added.
Pakistan gets closer to IMF deal after UAE pledges $1 billion
https://arab.news/bjxhh
Pakistan gets closer to IMF deal after UAE pledges $1 billion
- The country’s dollar-denominated government bonds firm after the cash pledge by the Arab country
- Last week, Saudi Arabia also told the global lender it would provide $2 billion in financing to Pakistan
Economists flag high production costs, low exports as key risks for Pakistan in 2026
- Financial experts urge government to address high interest and taxation rates to attract more foreign direct investment this year
- Economists note strong performance by Pakistan’s stock market, reduced inflation as key macroeconomic gains in the last year
KARACHI: Pakistani economists and business leaders urged the government on Wednesday to cut high production costs, arrest inflation and increase exports to capitalize on macroeconomic gains in 2025 as the country prepared to ring in the new year.
Prime Minister Shehbaz Sharif this week highlighted his government’s economic achievements over the past two years, saying that inflation had fallen from 29.2 percent to 4.5 percent, while foreign exchange reserves had more than doubled from $9.2 billion to $21.2 billion.
While Pakistan reported some economic gains during the year, such as comparatively low inflation, a $100 million current account surplus in November and a strong performance by the stock market, economist Sana Tawfik said deeper reforms were still needed to address pressing economic issues.
“When we talk about stability and growth, we cannot deny that there are challenges in the economy,” Tawfik, head of research at Arif Habib Limited, told Arab News. “High energy tariffs, interest rates and the broader cost of doing business need to be addressed if Pakistan wants to sustain growth, boost exports and attract foreign investment.”
Pakistan reported consumer inflation at 6.1 percent in November, saying it was projected to remain within the moderate 5.5-6.5 percent range in December.
Muhammad Rehan Hanif, president of the Karachi Chamber of Commerce and Industry (KCCI), agreed that high power tariffs were eroding the effectiveness of Pakistan’s exports.
“Our interest rate is still 10.5 percent, while the region is at six or seven percent,” Hanif lamented. “[While] electricity costs around 12 cents per unit here, compared to about nine cents in Bangladesh.”
The KCCI president also pointed to the country’s poor infrastructure, particularly that of its commercial capital Karachi, as a major challenge for the year ahead.
He said dilapidated roads, poor drainage and poor industrial conditions were damaging Pakistan’s image for visiting buyers and diplomats, discouraging investment.
“Infrastructure is the biggest challenge the industrialists in Karachi are facing,” he explained.
‘EXPORTS ARE OUR LIFELINE’
More troubling for Pakistan is the fact that foreign direct investment (FDI) inflows fell by more than 25 percent to $927 million during the July-November period, as per data from the central bank. Pakistan’s FDI inflows have never surged beyond $3 billion in nearly 20 years.
Economists say high energy costs along with interest and taxation rates are responsible for low FDI in the country.
Hanif stressed the importance of increasing Pakistan’s exports to ensure macroeconomic gains in 2026.
“Exports are our lifeline,” he said. “When 7 to 8 million Pakistanis abroad can generate $37 billion [in remittances], why are 250 million people here exporting only $32 billion?“
Tawfik agreed, saying that shifting to an export-driven economic model was essential for long-term sustainability.
“It is about time that we move from an import-driven economy to an export-driven one,” she said, adding that macroeconomic stability was a prerequisite for restoring investor confidence and attracting FDI.
Meeting the International Monetary Fund’s benchmarks, ensuring timely inflows from creditors and continuing reforms such as privatization of state-owned enterprises (SOEs) will also be critical in 2026, she added.
‘YEAR OF MACROECONOMIC STABILITY’
Despite these challenges, financial experts recognized that 2025 marked a clear improvement for Pakistan compared to the previous two years.
“The year 2025 can be described as a year of macroeconomic stability and overall, we saw some improvement in different macroeconomic indicators,” Tawfik said.
She noted that inflation, which had surged to a record 38 percent in May 2023, had been reduced to single-digit figures in 2025.
Pakistan’s Finance Adviser Khurram Schehzad said this week the Pakistan Stock Exchange has delivered 50 percent-plus returns in US dollar terms since January 2025, making it one of the “best markets in Asia.”
Tawfik said 2026 could see “positive” developments if the government maintains macroeconomic stability.
The economist said she expected growth at around 3.7 percent, inflation to remain within the central bank’s five to seven percent target range and a relatively stable exchange rate with modest depreciation.
However, she cautioned that without addressing high energy costs, easing business conditions and boosting exports, the government could risk squandering its hard-won macroeconomic gains.
“It is important to take all stakeholders on the same page and work in the same direction for overall economic betterment.”
