Pakistan's Economic Crisis Deepens: UAE Offers Short-Term Debt Lifeline

The extension covers two separate $1 billion loans that matured in mid-January 2026. However, the short tenure of just one month highlights the continuing financial stress faced by Islamabad, as it negotiates for a longer rollover period of up to two years at a lower rate.

The move underlines Pakistan's heavy dependence on friendly countries such as the UAE, Saudi Arabia and China to avoid default.

In the current fiscal year 2025-26, Pakistan faces external debt repayments of around $23-26 billion.

Despite some progress in achieving primary surplus targets, economic growth remains modest at around 3 per cent, which is not enough to absorb the country's rapidly growing population.

Unemployment has risen to nearly 7 per cent in 2024-25, with youth unemployment even higher.

Millions of young people enter the job market each year, but the economy struggles to create sufficient opportunities.

Rising energy prices, higher taxes under IMF conditions and past natural disasters have further slowed growth.

In an effort to reduce fiscal pressure, the government has accelerated privatisation. In late 2025, it sold a 75 per cent stake in Pakistan International Airlines to a private consortium.

Other state assets, including banks and power companies, are also being considered for sale or restructuring.

While privatisation aims to cut losses and improve efficiency, concerns remain about long-term public interest and service delivery.

Economists say Pakistan's crisis is structural and long-standing. High debt servicing costs limit public investment, weak exports restrict foreign exchange earnings and governance challenges continue to hamper reform efforts.

While IMF assistance and bilateral rollovers have helped prevent default, short-term fixes like the UAE's one-month extension show how vulnerable the economy remains.

With reserves covering only a few months of imports and large repayments ahead, Pakistan's financial position remains delicate.

Experts argue that deeper reforms, including widening the tax base, improving productivity and strengthening institutions, are essential to put the country on a sustainable path.

- IANS