Pakistan Converts $1 Billion Debt into UAE Equity Stake in Army-Run Fauji Foundation Amid Financial Strain

Pakistan has announced plans to convert $1 billion of its debt owed to the United Arab Emirates into equity by selling a stake in the military-operated Fauji Foundation. This decision highlights the country's increasing financial difficulties and dependence on international assistance.

At a year-end briefing, Pakistan's Deputy Prime Minister and Foreign Minister, Ishaq Dar, stated that Abu Dhabi would acquire shares in the Fauji Foundation Group, thereby nullifying a $1 billion obligation that was due by March 2026. The transaction is slated for completion by March 31.

In addition to this equity conversion, Pakistan is negotiating the rollover of an extra $2 billion in loans, further emphasizing the urgency of its financial requirements.

Mounting Debt Pressures

According to official figures, Pakistan's external debt stood at $91.8 billion as of June 2025, while its total public debt has escalated to approximately $286.8 billion. This is in contrast to an estimated $410 billion economy, as reported by the International Monetary Fund.

Over the past two years, Islamabad has secured roughly $12 billion from allied nations to stabilize its current account and meet IMF stipulations. Saudi Arabia has provided about $5 billion, China has contributed $4 billion through state-to-state deposits, and the UAE has added $3 billion.

Strategic Assets for Fiscal Relief

The debt-to-equity swap comes in the wake of Pakistan's recent privatization of Pakistan International Airlines, which raised around $482 million. However, the airline's legacy liabilities exceeding $2.3 billion were placed in a separate entity, offering limited immediate fiscal relief.

The new agreement with the UAE follows discussions between Prime Minister Shehbaz Sharif and UAE President Mohammed bin Zayed Al Nahyan, who has visited Pakistan twice this year.

Long Reliance on Bailouts

Since 1958, Pakistan has entered into 23 IMF programs and is currently supported by a $7 billion Extended Fund Facility and a $1.3 billion Resilience and Sustainability Facility. The country has also heavily relied on China, which has committed over $75 billion between 1999 and 2023, including significant investments under the China–Pakistan Economic Corridor.

Pakistan's economy remains fragile due to years of high inflation, liquidity shortages, natural disasters, and the pandemic. With the IMF forecasting a growth rate of only about 2.7% for this fiscal year, the agreement with the UAE reflects a shift from reform-based recovery to selling stakes in military-linked assets to remain solvent, raising new concerns about the country's long-term fiscal stability.