Prime Minister Shehbaz Sharif announced on Tuesday that the United Arab Emirates (UAE) has agreed to extend the repayment period for a $2 billion loan due this month. This agreement offers much-needed financial relief to Pakistan and underscores the strong bilateral relationship between the two nations.
Securing external financing has been a crucial requirement for Pakistan to unlock the $7 billion bailout package from the International Monetary Fund (IMF). Last year, support from friendly countries like China, the UAE, and Saudi Arabia played a pivotal role in enabling Pakistan to secure the IMF program by providing timely financial assurances. These confirmations were essential for the IMF’s fund disbursement, which was tied to debt rollover agreements from these countries.
Meeting with UAE President
During a recent personal visit to Pakistan, UAE President Sheikh Mohammed bin Zayed Al Nahyan held a one-on-one meeting with Prime Minister Shehbaz Sharif.
“In our meeting, he agreed to roll over the $2 billion loan due this month,” said the prime minister. Additionally, PM Shehbaz requested the UAE to invest in key projects across Pakistan to further strengthen economic ties. The UAE president reaffirmed his commitment to these investments, emphasizing the enduring brotherly relationship between the two countries.
Addressing Electricity Prices with IMF
Prime Minister Shehbaz also highlighted the need to engage with the IMF to address high electricity prices in Pakistan. Under the $7 billion Extended Fund Facility (EFF) signed in September 2023, the IMF has mandated significant policy changes, including levying additional charges on gas supplies to industrial captive power plants (CPPs). This measure aims to eliminate disparities between grid electricity and in-house generation costs.
Pakistan must implement these structural reforms, such as gas disconnections to CPPs by January 2025, to qualify for the next $1 billion tranche in March. The government plans to review progress with the IMF in February as part of the biannual evaluation.
The prime minister reiterated the importance of reducing electricity prices to boost industrial growth, exports, and commerce. He revealed that two or three options for addressing this challenge have been finalized in consultation with provinces and allies, with a comprehensive plan to be discussed in upcoming meetings.
National Economic Transformation Plan
PM Shehbaz also mentioned the National Economic Transformation Plan 2024-29, a home-grown strategy aimed at stabilizing and growing the economy. “We need to move forward with a solid plan that ensures sustainable growth,” he added.
Federal Government Expenditure Reforms
Finance Minister Muhammad Aurangzeb, addressing a press conference, discussed the government’s efforts to reduce federal expenditure through “rightsizing” initiatives.
“The federal government’s expenses, amounting to approximately Rs900 billion, are being reviewed for optimization,” he stated. He explained that the government is considering outsourcing certain operations to the private sector to ensure better allocation of resources. The reduction process involves phasing out 43 ministries and their associated departments in waves, with five to six ministries addressed in each phase.
Strategic Path Forward
The UAE’s decision to roll over the $2 billion loan and its commitment to invest in Pakistan’s key projects mark a positive step towards stabilizing the country’s economy. Combined with reforms under the National Economic Transformation Plan and support from international partners like the IMF, Pakistan aims to navigate its current economic challenges and pave the way for sustainable growth.
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