Pakistan’s reliance on foreign borrowing reached a record high in the fiscal year 2024-25, as the country secured $26.7 billion in foreign loans, a marginal increase from the previous year. Alarming, however, is the fact that nearly half of this amount came from rollovers of existing debt, underlining a deepening dependency on external creditors and growing concerns about long-term economic sustainability.
According to consolidated figures from the Ministry of Economic Affairs, State Bank of Pakistan (SBP), and Ministry of Finance, only $3.4 billion (13%) of these inflows were allocated toward project financing. The remainder primarily supported budgetary needs and foreign exchange reserves — areas that do not generate sufficient revenue to repay the borrowed funds.
The SBP’s gross foreign exchange reserves stood at $14.5 billion by the end of June 2025. However, much of this accumulation was facilitated by rollovers and refinancing rather than new capital inflows or export earnings. This signals a fragile external sector dependent on the goodwill of foreign lenders.
Who Lent the Most?
Breaking down the sources:
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$11.9 billion was officially booked under the federal government’s account.
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$12.7 billion represented rollovers from countries like Saudi Arabia, China, the UAE, and Kuwait.
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The IMF disbursed $2.1 billion, critical for budget support.
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China extended another $484 million in guaranteed loans for asset purchases.
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Saudi Arabia and UAE maintained their cash deposits with Pakistan’s central bank at interest rates ranging from 4% to over 6%, with these funds rolled over annually due to Pakistan’s repayment incapacity.
Lack of Access to Capital Markets
Pakistan failed to issue Eurobonds or Panda bonds last year as planned. This failure, due to the country’s junk credit rating, forced the government to turn to expensive commercial loans, often backed by guarantees from multilateral agencies like the Asian Development Bank (ADB).
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Breakdown of Multilateral Assistance
Multilateral lenders provided a total of $6.9 billion, including:
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$2.1 billion from the ADB,
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$1.7 billion from the World Bank,
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$716 million from the Islamic Development Bank,
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$200 million from Saudi Arabia’s oil facility — again, at a steep 6% interest.
Sustainability in Question
The debt-to-GDP and gross financing needs-to-GDP ratios now exceed sustainable thresholds, according to the Ministry of Finance. Economists consider a gross financing requirement above 15% of GDP unsustainable — and Pakistan is forecasted to remain above this level for at least the next three fiscal years.
IMF’s Concerns
In its review of Pakistan’s $7 billion programme, the IMF flagged several critical risks, including:
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Weak tax revenue performance
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High gross financing needs
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Declining foreign reserves
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Delays in structural reforms
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Political instability affecting economic decision-making
Between FY2025-26 and FY2027-28, the IMF estimates Pakistan’s gross external financing requirements at $70.5 billion, dependent on factors like the current account deficit, remittances, and export performance.
Despite these challenges, the government claims to be closely monitoring debt vulnerabilities and maintaining engagement with creditors. However, sovereign stress levels remain high, and reliance on rollovers, rather than real reform or productive investment, signals persistent economic fragility.
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