Anyone examining Pakistan’s Budget 2025-26 with a critical eye will be struck by a deeply concerning figure: 43% of all government expenditure is dedicated to debt servicing and foreign loan repayments. This massive outlay eclipses every other budgetary item.
Debt Now Dominates the Budget
To put it in perspective:
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Federal government expenses: 12%
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Development spending: 6%
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Defence and services: 8%
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Health, education, and social welfare: Low single digits
These allocations pale in comparison to the staggering burden of debt repayments.
Adding to the concern is the budgeted plan to borrow another Rs11 trillion, pushing Pakistan’s total public debt to Rs87 trillion by 2026, up from Rs76 trillion currently. That’s $300 billion in debt against a GDP of $400 billion, placing the debt-to-GDP ratio at 75% — well above the legal limit of 60% set by Pakistan’s Fiscal Responsibility and Debt Limitation Act of 2005.
The Squeeze on Development
As debt grows, so too will the cost of servicing it. Without bold fiscal reform, Pakistan will be left with shrinking resources for education, healthcare, infrastructure, and other essential services. This is not a hypothetical concern — it’s already happening.
What’s worse is the apparent absence of any strategy or acknowledgment by policymakers regarding the seriousness of the debt trap. The country is headed towards a scenario where government revenue may be almost entirely consumed by debt obligations, leaving little for public welfare.
Budget 2025-26: A Step Forward for Free Markets and Democratic Accountability
A Global Problem, A Global Response
Pakistan is not alone. Many developing nations are grappling with similar debt crises. Recognizing the global nature of the issue, the late Pope Francis initiated an important international effort to address sovereign debt distress.
He tasked the Pontifical Academy of Social Sciences with commissioning a report from Columbia University’s Initiative for Policy Dialogue, led by Nobel laureate Joseph Stiglitz.
The Stiglitz Report: A Moral Reframing of Debt
Released recently, the report is titled:
“A Blueprint for Tackling the Debt and Development Crises and Creating the Financial Foundations for a Sustainable People-Centred Global Economy.”
It begins powerfully:
“The developing world is facing dramatic debt and development crises… The real default is not to creditors, but to people, the environment, and the future.”
Key observations include:
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Debt-ridden countries are sacrificing social investments to meet foreign obligations
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Economic sovereignty is compromised as fiscal decisions serve creditors, not citizens
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National governance is undermined, delegitimizing democracy and accountability
The report calls for:
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An end to IMF surcharges
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A global bankruptcy court for sovereign debt, or a robust mediation system
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New international financial rules based on equity, justice, and sustainability
It concludes that debt crises are not only financial but moral and political — shaped by global power imbalances and institutional flaws.
Conclusion: From Warning to Action
While reports alone won’t change reality, the Stiglitz blueprint marks an essential starting point. It offers hope that international cooperation, guided by a sense of justice, can reshape the global financial order for the benefit of nations like Pakistan.
But until that global shift materializes, and until competent, courageous leadership emerges at home, Pakistan’s debt burden will continue to grow, consuming its future — and its people’s.
