Pakistan swaps UAE debt for equity in Asim Munir's Fauji Foundation, now scrambles to legalise deal

Pakistan army chief Asim Munir

• Pakistan to convert $1B UAE deposit into equity in Fauji Foundation
• Deal raises concerns about mixing state liabilities with military business interests
• Critics question transparency as Fauji Foundation avoids public auditing.

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Pakistan’s decision to allow UAE to acquire stake worth $1 billion in the army-run Fauji Foundation has sparked sharp questions amid concerns that the deal blurs the line between state liabilities and military-linked business interests.

According to the deal, Pakistan will allow UAE to convert part of its deposit - which is part of the financial support it provided to Islamabad - into long-term investment to reduce external debt.

Speaking at a year-end briefing, deputy prime minister and foreign minister Ishaq Dar confirmed that Abu Dhabi would acquire equity in the Fauji Foundation Group as part of a broader arrangement that also includes the rollover of another $2 billion in loans.

“We are currently engaged with the UAE ... regarding the rollover of $1 billion a few weeks ago. They will be acquiring some shares, and our liability will be eliminated. The shares are of the Fauji Foundation Group,” Dar said, adding that the government hopes to complete the transaction by March 31.

Notably, Fauji Foundation comes under the supervision of Pakistan's powerful army chief and Field Marshal Asim Munir.

Dar said that converting loans into equity would ensure the $1 billion liability due at the end of March would no longer remain on Pakistan’s books.

But the structure of the swap — moving a state obligation onto an entity that is legally described as “private” — is precisely what has raised eyebrows.

Political economist Ayesha Siddiqa wrote in The Print that UAE’s conversion of a state deposit into shares of the Fauji Foundation is “enigmatic” because “a state liability is being transferred to what is legally a private entity.”

She said that sources dealing with financial matters in Pakistan say “there is no legal method for this new arrangement,” and that the military and government “will put their heads together to legalise it.”

Why the Fauji Foundation is at the centre of the controversy

The Fauji Foundation (FF) is the military’s largest welfare foundation, created in 1954 under the Charitable Endowment Act, 1890 to support retired personnel and their families.

Though officially a private organisation, FF is administered by senior state and military officials. This means that it's under the direct control of army chief Munir.

Moreover, the arrangement with UAE is particularly sensitive because Pakistan’s external debt has climbed to $91.8 billion as of June 2025, while total public debt had climbed to around $286.8 billion — against an economy estimated at roughly $410 billion by the IMF.

Pakistan has raised around $12 billion from “friendly countries” in the last two years to plug gaps, and Dar himself acknowledged the scale of that reliance.

“I was right to say that Pakistan would not have taken $12 billion from the begging bowl if it had acted on the IMF programme,” Dar said. “Saudi Arabia supported $5 billion in this period. China supported $4 billion via a state-to-state deposit, and the UAE supported $3 billion.”

The loan-to-equity conversion may reduce headline liabilities in the short run, but it also signals how far Islamabad is willing to go to secure external support — including by offering access to military-linked assets.

A major point of unease is the question of transparency.

Siddiqa said that like its sister welfare organisations — the Army Welfare Trust, Shaheen Foundation and Bahria Foundation — the Fauji Foundation has “never been subjected to public auditing” because it insists it is a private entity.

This means that UAE will have to turn a blind eye to issues of accountability and financial transparency, basically believing what the Army GHQ in Rawalpindi will tell them, she wrote in The Print.

Siddiqa further said that the partnership gives Munir a direct foothold in the Pakistani economy with the foundation as his front. "In order to reposition the country’s economy, which is now Munir’s primary goal, he only has his own men to trust," she said.

She further alleged that there are rumours in Islamabad that Munir may force changes in the federal government to ensure that the administration is more efficient and functional than before.