Pakistan is restructuring its external debt by replacing repayments owed to the United Arab Emirates with new loans from Saudi Arabia.
This strategy has helped the government meet its financial obligations without reducing its foreign exchange reserves.
Officials said Pakistan repaid $2 billion to the UAE on Saturday using fresh Saudi financing. This brings the total payments to Abu Dhabi this week to $2.5 billion. The remaining $1 billion will be paid on Thursday through another Saudi loan, which is expected to arrive next week.
Despite these large repayments, authorities said the country’s reserves, currently around $15 billion, will not be affected because the debt is being refinanced rather than paid from reserves.
The sudden repayment request from the UAE created a funding gap of about $3.5 billion. This forced Pakistan to quickly arrange alternative financing to stay on track with its commitments under the $7 billion programme with the International Monetary Fund.
The $2 billion loan repaid this week was originally taken in 2018 during the government of former Prime Minister Imran Khan to support falling reserves.
In addition, Saudi Arabia has agreed to extend its $5 billion deposit with Pakistan for two more years. It is also expected to renew a $1.2 billion oil financing facility.
Experts warn that relying on new loans to repay old ones may increase long-term financial pressure, as overall debt levels remain high despite temporary relief measures.