Pakistan Explores Eurobonds and New Loans to Replace $3.5bn UAE Facility

Pakistan is evaluating several financing mechanisms to replace a $3.5 billion facility from the United Arab Emirates (UAE), as the country prepares to repay the loan in April 2026. Finance Minister Muhammad Aurangzeb stated that the government is considering a variety of options, including Eurobonds, commercial debt, and bilateral loans from other countries to manage its foreign reserves and maintain macroeconomic stability.

The repayment of the UAE facility this month is expected to place temporary pressure on Pakistan’s foreign exchange reserves. This financial movement occurs as the country works to meet targets set under its ongoing program with the International Monetary Fund (IMF). Finance Minister Aurangzeb, speaking on the sidelines of the IMF and World Bank annual spring meetings in Washington, noted that Pakistan’s reserves currently provide approximately 2.8 months of import cover.

Diversified Financing Strategies

To offset the repayment of the UAE loan, the Pakistani government is exploring multiple instruments in the international capital markets. Minister Aurangzeb confirmed that all options are on the table, including potential financing arrangements with Saudi Arabia.

The specific financial tools being considered include:

• The issuance of Eurobonds expected within the current year.
• Islamic sukuk.
• Dollar-settled, rupee-linked bonds.
• Commercial loans from international banks.

Pakistan is preparing for its first-ever issuance of a Panda bond in Chinese yuan, scheduled for May 2026. This initial $250 million issue is part of a larger planned $1 billion program and will be backed by the Asian Infrastructure Investment Bank and the Asian Development Bank.

Impact of Middle East Conflict

The ongoing war in the Middle East has introduced significant economic shocks and highlighted vulnerabilities in Pakistan’s energy security. Minister Aurangzeb told Reuters that these supply shocks have demonstrated the necessity for the country to move away from a reliance on commercial reserves and instead establish strategic petroleum and LPG reserves.

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The Finance Minister emphasized that the current volatility necessitates a faster transition toward renewable energy to mitigate the impact of global price spikes. He stated that the supply shocks send a very clear view that the journey toward energy independence and renewable sources must be accelerated.

On the diplomatic front, Pakistan has gained international attention by acting as a mediator between the United States and Iran in efforts to end the conflict in the Middle East.

IMF Program and Economic Outlook

Regarding its relationship with the IMF, Pakistan has not yet requested formal changes to its $7 billion lending program despite the disruptions caused by the Middle East war. However, Aurangzeb indicated that future discussions regarding the program may occur depending on how conditions evolve over the coming weeks.

The IMF board is expected to approve a new lending tranche by the end of April or early May 2026. This approval would unlock approximately $1.3 billion through the Resilience and Sustainability Facility (RSF) and the Extended Fund Facility (EFF).

Despite external pressures, the Finance Minister expressed confidence in the country’s ability to manage its debt repayments. He cited several factors that he believes will allow the economy to absorb external shocks for the fiscal year ending June 30, 2026:

• Projected GDP growth of nearly 4%.
• Strong remittance inflows estimated at around $41.5 billion.
• Targeted social support measures designed to assist the poorest citizens.

Aurangzeb concluded that maintaining the current level of import cover is an essential component of the government’s strategy for overall macroeconomic stability as the country navigates these financial obligations and geopolitical challenges.