This handout image provided by the UAE Presidential court on Jan 12, 2023 shows UAE President Sheikh Mohamed bin Zayed al-Nahyan (right) posing for a picture with Shehbaz Sharif, Prime Minister of Pakistan (left), prior to their meeting, at Al Shati Palace in Abu Dhabi. (UAE PRESIDENTIAL COURT / AFP)
The United Arab Emirates agreed on Thursday to lend $1 billion to Pakistan and roll over an existing $2 billion loan, Pakistan's information minister said, as the country's central bank foreign reserves fell to just three weeks' worth of imports.
The UAE's financial support offered some respite to the South Asian nation of 220 million, which is still reeling from devastating nationwide floods that have caused more than $30 billion of damage.
The International Monetary Fund's ninth review to clear the release of a further $1.1 billion tranche of funds to Pakistan has been pending since September, so external financing is crucial for the country's broken economy.
Pakistan's Prime Minister Shehbaz Sharif praised the historical ties between Pakistan and UAE and reaffirmed his government's commitment to working closely with the leadership of the UAE to further enhance bilateral cooperation
Foreign exchange reserves held by State Bank of Pakistan (SBP) fell to a critical level of $4.3 billion, the bank said, barely enough for three weeks of imports.
Net foreign exchange reserves held by commercial banks stood at $5.8 billion, and total liquid reserves at $10.1 billion, the bank added.
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The drop was due to external debt repayments, it said.
Despite recent compression measures by the government, Pakistan's import bill for goods was $5.1 billion per month in both November and December, according to the country's statistics bureau.
Pakistan's main imports are critical energy-related fuels.
The IMF and Pakistan signed a $6 billion bailout in 2019 that was topped up with another $1 billion earlier this year.
The lender wants Pakistan to implement fiscal measures to meet budgetary targets, introduce reforms in power and energy sectors and review subsidies to farming and export sectors.
IMF officials met Pakistan's finance minister, Ishaq Dar, on Monday on the sidelines of a Geneva climate conference at which more than $9 billion of pledges were made for flood recovery.
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Dar said on Wednesday Pakistan was already working on a fiscal contingency plan to shed energy sector debt and review the subsidies.
Long-time ally Saudi Arabia has said it is also considering investing $10 billion and increasing its deposits in the country's central bank from $3 billion to $5 billion.
Sharif on visit to the UAE
The loan announcements came as Pakistan's prime minister, Shehbaz Sharif, kicked off a two-day visit to the United Arab Emirates.
Sharif stressed the importance of intensifying and strengthening communication between the private sector of the two countries for seeking investment opportunities, a statement from Islamabad added.
The Pakistani prime minister also underscored the importance of the Pakistan-UAE relationship and expressed that Pakistan views UAE as a trusted political and economic partner, said the statement.
Sharif also praised the historical ties between Pakistan and UAE and reaffirmed his government's commitment to working closely with the leadership of the UAE to further enhance bilateral cooperation.
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Vice-President and Prime Minister of the UAE Sheikh Mohammed bin Rashid Al Maktoum welcomed the Pakistani prime minister to Dubai and expressed his best wishes for the progress and development of Pakistan under his leadership.
Sharif extended an invitation to Rashid to visit Pakistan at mutually convenient dates which he accepted.