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Pakistan’s economy was already struggling with expensive crude oil and weak financial conditions, but now it has suffered another big blow. This is the first time in seven years that the United Arab Emirates (UAE) has refused to extend the loan of $3 billion given to Pakistan. This decision has made Pakistan’s economic situation more difficult.

This $3 billion is a major part of Pakistan’s total foreign exchange reserves. If it has to be paid immediately, it will have a direct impact on the country’s treasury. Recently, Pakistan had foreign exchange reserves of about 16.4 billion dollars, which is considered sufficient only for three months of imports. In such a situation, withdrawal of such a huge amount can weaken economic stability.

What is the reason behind UAE’s decision?

The real reason behind this step of UAE is not clear. The Government of Pakistan has described this as a normal financial process, so that any political dispute can be ruled out. However, some experts believe that the terms of the loan could not be agreed upon. Some experts also say that Pakistan’s growing relations with Saudi Arabia could be a reason for this decision. Apart from this, there is also a possibility that Pakistan may have decided to repay the loan instead of increasing it at a higher interest rate.

Impact on market and currency

In recent times, Pakistan had received help from countries like International Monetary Fund (IMF), China and Saudi Arabia, due to which its economy had recovered to some extent. But after this new development, there has been a decline in the stock market. Earlier the Pakistani rupee was stable against the dollar, but now the pressure on it may also increase. At the same time, the country’s main stock market index has fallen in recent times, due to which the confidence of investors has weakened.

facing double challenge

This is not the only problem facing Pakistan. This month it also has to make bond payments of about $1.3 billion to international investors. Apart from this, the next installment from the International Monetary Fund has also not been released yet, due to which the financial crisis may deepen further.

What option does the government have?

To deal with this situation, the Central Bank of Pakistan may have to take some strict steps. These may include measures like control on imports, increase in interest rates and borrowing from banks. Some experts believe that old methods like ‘dollar swap’ can be resorted to, although this also has limitations and is not liked by international organizations.

Pakistan has earlier tried to convert UAE’s debt into investment. Many UAE companies have also invested in Pakistan, which includes banking and port sectors. But in the current situation, the future of these schemes looks uncertain.