Pakistan’s government panics as UAE demands its USD 1 billion back from the country

In a recent event that took place between Pakistan and United Arab Emirates left the former in a state of panic, creating another incident of embarrassment of Pakistan in the world. The United Arab Emirates has demanded its USD 1 billion back from Pakistan, with a deadline of March 12, 2021 which, by the time you read this article would be gone and unsurprisingly, the Imran Khan-led ruling government and their top officials are in panic to fulfil the commitment. The demand for the return of the money roots from the fact that the amount so deposited with the central bank of the country, State Bank of Pakistan, has reached its maturity. So, even though the Imran Khan government had seen this coming, the repayment amount is large enough to make it impossible to adhere to the demand, especially considering the country’s current economic condition which has been left in an even worse condition because of the coronavirus pandemic.
Before we move forward to discuss the developments and way forward in the current incident, let’s take a moment to understand the backstory of where and why this money being talked about comes from. The country approached many world countries for funds in order to save itself from a balance of payment crisis in the near future owing to its risen current account deficit of USD 7.9 billion in the first half of the fiscal year of 2019-20. The country had expected to witness a further expansion in the deficit to about USD 16-18 billion unless immediate action was undertaken. Thus, in an attempt to save the crisis before it goes completely out of hand, Pakistan, before knocking on The United Arab Emirates’ door, approached China and Saudi Arabia for bilateral support. The Pakistan government signed a deal of USD 3 billion with Saudi Arabia and had received USD 2 Billion in its central bank i.e. the State Bank of Pakistan by the time it approached The United Arab Emirates. Not only that, but Saudi Arabia also agreed to supply oil worth USD 3 billion on deferred payments to Pakistan.
As for The United Arab Emirates, Pakistan entered into an agreement with the country for a fund termed the “Abu Dhabi Fund for Development“. The said agreement with Abu Dhabi included terms of a USD 3 billion transfer to Pakistan in three instalments to help bridge Pakistan’s current account deficit. As per the agreement, the first instalment of USD 1 billion was to be made on January 22, 2019, which was duly fulfilled after the country’s central bank received the amount on the said date. However, the funds from Saudi Arabia and The United Arab Emirates had no significant impact on the exchange rates. The hopes of improvement from more inflows from The United Arab Emirates went down the drain despite the receipts as the pandemic struck and the global trade came to a halt, leaving behind very less scope of recovery of balance of payment for Pakistan. Not only that, the financial condition of the country’s economy entered one of the worst recessions in the world. Pakistan’s current economic state is nothing short of a mess, with its recession in the pandemic year being a secret from the world. According to the estimate made by the recent World Bank data, Pakistan’s real GDP growth is estimated to have declined from 1.9 per cent in the financial year 2019 to a negative income level of -1.5 per cent in the financial year of 2020, as the coronavirus pandemic strangled the economies. Earlier this year, the International Monetary Fund (IMF) and Pakistan reached a staff-level agreement to release USD 500 million as part of the larger loan pact. The year 2019 saw the international financial institution agreeing to provide a USD 6 billion loan to the country to rein in the debt crisis in exchange for reform measures.
Thus, keeping in view the country’s economic and financial condition, Pakistan’s ruling government led by Imran Khan has expressed their inability to meet The United Arab Emirates’ demand of repayment of USD 1 billion with respect to the agreement’s maturity. The government of Pakistan has pleaded to The United Arab Emirates that returning such a significant amount, especially in such a vulnerable economic condition, would not be a feasible option right now and would negatively impact the already deteriorated economic situation of the country right now. With effect to this, multiple attempts have been made by the top Pakistan officials to reach out to The United Arab Emirates, especially to get in contact with the Crown Prince. However, no response from the other side has been received as of now and the situation is very sensitive at the moment. The recent developments in the situation are yet to be witnessed but what can be gathered from the information available at this moment is that the time is not very healthy for Pakistan and any critical move made by the United Arab Emirates with respect to non-adherence of the demand would have a worsening impact on the country’s condition.