UAE Lends Pakistan Billions, Competing with China

In this photo released by Russian Foreign Ministry Press Service, UAE's Foreign Affairs Minister Sheikh Abdullah bin Zayed bin Sultan Al Nahyan gestures during a joint news conference with Russian Foreign Minister Sergey Lavrov in Abu Dhabi, United Arab Emirates, Tuesday, March 9, 2021. (Russian Foreign Ministry Press Service via …
Russian Foreign Ministry Press Service via AP

Sheikh Abdullah bin Zayed al-Nahyan, foreign minister of the United Arab Emirates (UAE), told his Pakistani counterpart Shah Mahmood Qureshi on Tuesday that the UAE will roll over a $2 billion loan and “extend every possible support” in an effort to improve relations between the two countries.

Qureshi responded by saying the UAE’s gesture “reflected the warm and brotherly ties” between the UAE and Pakistan, while Qureshi’s office hailed the loan rollover as “yet another manifestation of the close cooperative relations between the two countries.”

The interest-free loan of $2 billion was made in January 2019 by the Abu Dhabi Fund for Development (ADFD), which is essentially the UAE’s foreign aid program. The Pakistani government was struggling to pay its debts at the time, little knowing its economic situation would soon be made even worse by the Wuhan coronavirus pandemic. 

The UAE’s decision to roll over the loan was made only a few days after the International Monetary Fund (IMF) agreed to resume Pakistan’s $6 billion bailout program.

Relations between the UAE and Pakistan were strained when the former imposed a ban on work visas from 13 mostly Muslim countries in November, reportedly due to security concerns. Pakistan was hit especially hard by the ban because a large number of its citizens remit money to their relatives back home while living and working in the UAE. Qureshi raised the visa issue with Nahyan during their meeting.

Some observers suspect the loan rollover was part of a deal in which Pakistan agreed to improve relations with India, a process the UAE has been quietly helping along in a bid to counter Chinese influence in the region. Pakistani Prime Minister Imran Khan recently and without explanation abandoned his demand for Indian concessions in the contested Kashmir region as a precondition for talks with India.

Pakistan took out a $2 billion loan from China soon after borrowing a similar amount from the UAE in 2019, and also agreed to a $6 billion bailout package from Saudi Arabia. 

Pakistan also became a major participant in China’s Belt and Road infrastructure plan, although that deal turned sour in January, partly over the interest rates China planned to charge for infrastructure loans to Islamabad. The Chinese apparently grew nervous about lending more money to heavily-indebted Pakistan, especially with an IMF bailout plan on the table, while the Pakistanis had second thoughts about the degree of economic leverage China was gaining over them through Belt and Road loans.

At the same time, Pakistan is looking to China for support after the UAE banned work visas and the Saudis began pressing Islamabad to replay some of its outstanding loans. If China has any objections to the UAE projecting influence into Pakistan and giving diplomatic assistance to India, it has kept them quiet, possibly because both Pakistan and the UAE have helpfully refrained from criticizing China’s abuse of the Uyghur Muslims.

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