In a troubling reflection of deepening financial reliance, Pakistan secured a record $26.7 billion in foreign loans during the fiscal year 2024-25, according to official data compiled by the Ministry of Economic Affairs, State Bank of Pakistan (SBP), and Ministry of Finance. Nearly half of these inflows were rollovers of existing loans, indicating the country’s growing dependence on external creditors.
Only $3.4 billion, or approximately 13%, of the total loans were allocated for project financing, underscoring the lack of revenue-generating use of borrowed funds. The majority was used for budgetary support and to boost foreign exchange reserves — mechanisms that do not directly aid in repayment.
By the end of June, the SBP’s gross foreign exchange reserves stood at $14.5 billion, largely comprised of rollovers, refinanced obligations, and a portion of fresh borrowing. This paints a fragile picture of Pakistan’s external sector stability.
Breakdown of Foreign Loans:
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$11.9 billion booked on federal government accounts
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$2.1 billion disbursed by the IMF under its ongoing programme
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$12.7 billion in rollovers from Saudi Arabia, China, UAE, and Kuwait
Saudi Arabia contributed $5 billion in cash deposits at a 4% interest rate, annually rolled over. China added $4 billion in deposits at over 6% interest, while the UAE provided $3 billion. The IMF’s ongoing support is conditional on continued rollover of these loans, raising questions about Pakistan’s long-term debt strategy.
Multilateral and Commercial Lending:
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$4.3 billion secured in commercial loans, primarily refinanced Chinese loans
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ADB disbursed $2.1 billion, exceeding the budgeted amount
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World Bank released $1.7 billion, falling short of expectations
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Islamic Development Bank contributed $716 million
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Saudi Arabia provided $200 million for oil financing at 6% interest
Efforts to tap global capital markets through Eurobonds and Panda bonds were unsuccessful due to Pakistan’s junk-rated credit status. The government instead opted for expensive commercial loans backed by multilateral guarantees to bridge financing gaps.
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Rising Debt Burden:
The debt-to-GDP and gross financing needs-to-GDP ratios now exceed sustainable levels, according to the Ministry of Finance. A financing need over 15% of GDP is considered risky; Pakistan is projected to stay above this level for at least the next three years.
The IMF, in its first review of the $7 billion programme, flagged critical concerns, including:
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Weak policy implementation
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Low tax revenue performance
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Persistent socio-political instability
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High gross financing needs
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Low reserves and large foreign exchange derivative positions
Looking ahead, the IMF projects Pakistan’s gross external financing requirement at $70.5 billion for the next three fiscal years (FY2025-26 to FY2027-28). These projections may fluctuate based on remittances, exports, and current account trends.
Despite assurances from the government about monitoring debt risks and the sovereign-bank nexus, the IMF cautioned that the overall risk of sovereign stress remains high, especially in the absence of consistent reform and revenue generation strategies.
