The United Arab Emirates is now demanding Pakistan return the money it owes. The Abu Dhabi Fund for Development and provided $2 billion as a loan in two tranches in January and March 2019. The full amount was to be returned in April this year, but Pakistan has missed the deadlines.

The funds were deposited in the State Bank of Pakistan over two years ago and it is now past its maturity. The loan was provided to Pakistan as Islamabad's economy continued to struggle with sluggish growth amid the coronavirus pandemic. The loan offered was interest-free in order to help Pakistan avert a potential balance of payment crisis.

Imran Khan

It was reported in March that the UAE demanded $1 billion, but Islamabad failed to fulfil the order. The deadline to repay $2 billion was April 19, 2021, but it was extended after a meeting between Sheikh Abdullah bin Zayed Al Nahyan, Minister of Foreign Affairs and International Cooperation, and Shah Mahmood Qureshi, Pakistan's Minister of Foreign Affairs, on April 20.

While the extended date for repayment was not revealed, reports suggest Imran Khan's ministers are now asking UAE to extend the deadline once again. Pakistan is in the midst of a serious debt-crisis and the COVID pandemic has worsened the situation.

PAK's rising debts, plunging economy

The Pakistan government had contracted $10.447 billion worth of new foreign loans from multilateral institutions and commercial banks during the fiscal year 2019-20.

Pakistan has only been able to repay part of the debts, that to with the help of China. Last year, Beijing agreed to provide $1.5 billion financing line to Pakistan in order to repay the $2B debt owed to Saudi Arabia.

Xi Jinping, Imran Khan
REUTERS/Thomas Peter/Pool

Pakistan's credit score is a serious cause for concern. Earlier this year, Pakistan and International Monetary Fund (IMF) reached a staff-level agreement to release $500 million as part of a larger loan pact. Last month, the IMF agreed to release the next tranche of $500 million after approving four pending reviews of the country's economic progress, Business Standard reported.