Why the UAE asked Pakistan for its $3.5bn back

Pakistan’s sudden repayment of roughly $3.5bn to the United Arab Emirates has exposed how geopolitics and financial dependence are increasingly intertwined. What Islamabad described publicly as a “routine financial transaction” came after Abu Dhabi made an unexpected request for immediate repayment—at a time when Pakistan’s foreign exchange reserves were already under pressure and tied to a $7bn IMF bailout programme, as per a report by FT.According to multiple reports, the demand risked draining nearly a fifth of Pakistan’s central bank reserves, which stood at about $16.4bn in March. The State Bank of Pakistan confirmed that the full $3.45bn had now been repaid, including a final $1bn instalment to the Abu Dhabi Fund for Development. The funds were part of financial support extended in 2019 to stabilise Pakistan’s balance of payments and had been routinely rolled over for years.The timing, however, proved critical. Islamabad had already repaid a $1.3bn Eurobond earlier in April and is aiming to push reserves above $18bn under IMF conditions. Analysts warn that the UAE repayment could strain those targets and weigh on the rupee unless replaced by fresh inflows.Behind the UAE’s decision lies growing frustration in Abu Dhabi over Pakistan’s foreign policy choices during the recent US-Israel war with Iran. Islamabad positioned itself as a mediator between Washington and Tehran—an approach that reportedly did not sit well with Emirati leaders.Analysts say the UAE viewed neutrality as unacceptable in a conflict where Gulf states felt directly threatened. Neil Quilliam of Chatham House said Abu Dhabi “sees things in kind of black and white”, adding that “if you’re mediating then you are in the middle ground”, which the UAE currently rejects.There are also deeper regional tensions at play. Relations between Saudi Arabia and the UAE have been strained, particularly over Yemen, where they back rival factions. Pakistan’s growing alignment with Riyadh—including a defence pact signed last year—has added another layer of friction. One adviser said the UAE had signalled it wanted Islamabad to take a tougher stance against Iran.Saudi support cushions the blowAs the UAE tightened financial pressure, Saudi Arabia stepped in with $3bn in fresh deposits and extended an additional $5bn facility. This helped Islamabad meet its immediate financing needs, but also highlighted a shifting dependency.Pakistan requires around $12bn in external deposit rollovers this fiscal year, including $5bn from Saudi Arabia and $4bn from China. While Riyadh has historically supported Islamabad, analysts caution against over-reliance, particularly as Saudi Arabia faces its own fiscal pressures.