Mounting pressure on forex reserves: Fresh external financing options being explored

ISLAMABAD: Mounting pressure on foreign exchange reserves has pushed Pakistan to explore fresh external financing options, including potential support from key allies China and Saudi Arabia, as it prepares to navigate a widening financing gap following the decision to repay around USD3.5 billion to the United Arab Emirates (UAE).

This was revealed by official sources while talking to Business Recorder. However, after repeated attempts no response was received from minister of state for Finance and Advisor to the federal minister for Finance.

Officials said delays in the planned issuance of Panda bonds have further exacerbated the situation, tightening financing options at a sensitive time.

The development comes at a critical juncture, with the government finalizing arrangements to repay USD3.45 billion to the UAE during the current month.

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According to officials, USD450 million would be paid during the current week, while the remaining USD3 billion will be cleared in two tranches—USD2 billion on April 17 and USD1 billion on April 23.

These loans, some dating back to the late 1990s and later rollovers, carried an interest rate of around 6.5 percent.

According to the State Bank of Pakistan, the total liquid foreign reserves held by the country stood at USD21.789 billion as of 27-March-2026.

The break-up of the foreign reserves position is as under: (i) foreign reserves held by the State Bank of Pakistan— USD16.381 billion, (ii) net foreign reserves held by commercial banks —USD5.407 billion.

Despite the hefty outflows, authorities insist that Pakistan’s external position remains manageable. The central bank’s foreign exchange reserves stand at USD16.4 billion, providing a cushion for immediate obligations, including the upcoming USD1.3 billion Eurobond repayment. However, the broader picture remains challenging, officials added.

The International Monetary Fund in its report released in December 2025, following the second review of the ongoing External Financing Facility (EFF), projected Pakistan’s gross external financing requirements at USD19.398 billion (4.6 percent of GDP) for fiscal year 2025-26, followed by USD19.123 billion in fiscal year 2026-27.

The Fund stated that the programme is fully financed, with firm commitments for the next 12 months and good prospects for the remainder of the Fund-supported program. Further progress has been made in securing financing committed ahead of the EFF request, including from the Saudi Development Fund and China EXIM. Major IFIs now expect to provide more financing in fiscal year 2026 than previously anticipated, which will help absorb flood impacts on the BOP, while the outlook for new commercial financing has also improved. Key bilateral partners remain committed to rolling over existing short-term liabilities in the remaining program period, the Fund report noted.

Copyright Business Recorder, 2026