What prompted Pakistan to repay funds to United Arab Emirates so quickly?
- Islamabad repaid all $3.5B in debt to Abu Dhabi amid Pakistan’s mediation of US-Iran war
- Analysts link move to ‘new regional alignment and global positioning’ as Middle East conflict continues
Aamir Latif
Pakistan last week repaid $3.5 billion to the United Arab Emirates (UAE), a development many viewed as showing the Gulf state’s displeasure over Islamabad’s policy on the Middle East.
Saudi Arabia, which inked a bilateral defense pact with Pakistan last year, immediately came to its rescue, injecting $3 billion in Islamabad’s foreign reserves.
The oil-rich kingdom, which has been at odds with the UAE on a slew of foreign policy issues from Yemen to Sudan, also extended an existing $5 billion loan for more than a year.
Some analysts view the developments with caution, warning of over-reliance on Riyadh’s financial support, which is equivalent to almost 50% of the State Bank of Pakistan’s total foreign reserves of $16 billion.
Others downplayed the UAE’s move, saying that it would help lead the South Asian nuclear country to long-term stability.
“What has happened is part of a new regional alignment and global positioning amid the ongoing Middle East conflict,” Ammar Habib Khan, a Karachi-based political economist, told Anadolu.
“This new alignment was all set even before the war, but now it has become clearer who stands with whom,” Khan said, referring to the UAE’s withdrawal of deposits, which were replaced by Saudi Arabia.
Describing the decision to repay the money to the UAE as simply a “routine financial transaction,” Pakistan’s Foreign Ministry, however, denied that the repayment is linked to the war in the Middle East, insisting there is no “gap” between Islamabad and Abu Dhabi.
According to Khan, Pakistan’s decision to stand alongside Riyadh is a “wise” move since the two sides already have a defense agreement.
“If you have to choose, then you go for long-term stability rather short-term stability. And Pakistan has wisely chosen,” he added.
Khan said Pakistan will not suffer much from the UAE’s move as Islamabad could have arranged this amount through other sources even if Saudi Arabia had not stepped in.
He added that Islamabad would have an opportunity to earn foreign reserves through potential sales of defense products following its defense pact with Riyadh.
Khan added that Pakistan’s ongoing mediation to end the Middle East conflict, especially the near-closure of the Strait of Hormuz, has elevated Islamabad’s geopolitical status and positioned it a “new security guarantor” in the region.
Islamabad, he went on to say, can find alternative markets in the Mideast and formalize its trade with Iran if international sanctions on Tehran are lifted in case of an agreement with the US.
Currently, thousands of people in Pakistan’s southwestern Balochistan province are involved in illegal fish exports and oil imports from Iran.
A 1,700-kilometer (1,056-mile) long Pak-Iran gas pipeline project, which aims to provide 750 million cubic feet of gas per day to Pakistan, has been lying incomplete since 2013. The project was supposed to be completed in 2015.
The US is said to have applied pressure on its ally to stay away from the project with Iran, though Pakistan officially denies this.
‘Over-reliance’
In addition to the withdrawal of deposits, the UAE has also conveyed to Islamabad the end of an ambitious Pakistani proposal to convert $1 billion of debt into investments in an army-linked consortium, the Fauji Foundation, Finance Ministry sources told Anadolu on condition of anonymity.
Shahid Hasan Siddiqui, a Karachi-based economist, said that although Riyadh’s financial assistance saved Pakistan from an “immediate shock” in terms of foreign reserves, it also added to Islamabad’s already over-reliance on foreign financing, particularly by Saudi Arabia.
“This should be seen only as a fleeting relief to counter an immediate threat to the country’s foreign reserves,” Siddiqui told Anadolu.
But, according to Siddiqui, the latest developments have increased “economic risks” and shrunk Islamabad’s financing resources.
“We put all our eggs in one basket. What if Saudi Arabia becomes unhappy with our foreign policy or the US doesn’t need us tomorrow?” he asked.
Acknowledging that Riyadh’s latest financing has helped Pakistan maintain its foreign reserves, Siddiqui said it must take short-term and long-term steps in addition to structural reforms to bolster its struggling economy and avoid a “foreign policy compromise.”
“A nuclear country cannot run like that, where its imports are double its exports, and foreign remittances are being used to cover the trade deficit instead of investing them,” he added.
Siddique called for taxing big foreign remittances to discourage money laundering.
“Currently, there is no tax on a foreign remittance whether it’s $10 or $100,000,” he noted, adding that the blanket tax impunity on foreign remittances is further weakening the country’s already scanty tax net.
Also, he added, at least 50% of the foreign remittances should be invested to bolster the country’s foreign reserves through “own money” rather than loans and deposits.
Economic ties
Shamshad Khan, a former Pakistani foreign secretary, said Islamabad is being penalized just because of internal rifts within the Gulf nations, particularly Saudi Arabia and the UAE.
“Pakistan has not only condemned war on Iran but also condemned attacks on the UAE and other Gulf states,” Khan said, adding that maintaining good relations with Iran and Arab countries simultaneously has been the cornerstone of Pakistan’s foreign policy.
“Let me make it clear, Pakistan has not made any changes in its traditional foreign policy vis-a-vis the UAE,” he maintained.
Pakistan’s relationship with the Gulf States are mainly based on economics. Huge amounts of remittances sent by expatriate Pakistanis in Saudi Arabia, the UAE, Qatar, Kuwait, and other Gulf states have a significant impact on the country’s economy.
Saudi Arabia and the UAE jointly host over 3.5 million Pakistanis.
Saudi Arabia, which hosts over 2.7 million Pakistanis alone, tops the list of countries with highest remittances to Pakistan – $9.64 billion in 2025, followed by the UAE, which is home to 1.8 million Pakistanis, who remitted $8.21 billion last year, according to State Bank of Pakistan.
Pakistan’s total manpower exports to various countries stood at 762,499 in 2025, with Saudi Arabia absorbing 69.5% of the total, official data showed.
Also, Saudi Arabia and the UAE are Pakistan’s largest regional trading partners, exporting goods and services to Pakistan, mainly oil.
Islamabad’s exports to UAE and Saudi Arabia in 2025 stood at $2.1 billion and nearly $750 million, respectively.
Read: Pakistan’s AI ambitions: Opportunity or Overreach?
_____________________
Aamir Latif is a Karachi-based senior journalist. He represents Anadolu, a Turkish news agency.
Courtesy: Anadolu Agency
