ISLAMABAD | July 2025
In a telling sign of deepening economic fragility, Pakistan secured a record $26.7 billion in foreign loans during the fiscal year 2024–25. However, a closer look at the numbers reveals a troubling reality — nearly half of this amount was simply rollovers of old loans, reflecting a growing reliance on external creditors rather than a strategy for sustainable growth.
The latest figures, compiled by the Ministry of Economic Affairs, the State Bank of Pakistan (SBP), and the Ministry of Finance, show that this year’s borrowing surpassed last year’s total by a modest margin. But what stands out is how little of it — just $3.4 billion or around 13% — went toward project financing. The rest? Primarily budgetary support and foreign exchange reserve buildup — mechanisms that don’t generate direct revenue for loan repayment.
Debt on Repeat: The Rollover Reality
Pakistan’s foreign exchange reserves stood at $14.5 billion by the end of June, but these are largely artificial cushions — built not through exports or investment inflows, but via rollovers, refinancing, and fresh borrowing. The cycle is becoming predictable, and increasingly unsustainable.
Out of the $26.7 billion, $12.7 billion came from rollovers of cash deposits by key allies: Saudi Arabia, China, the UAE, and Kuwait. These loans are being renewed annually, as Pakistan has been unable to repay the principal amounts.
- Saudi Arabia alone has parked $5 billion in Pakistan’s central bank, with a 4% interest rate.
- China has deposited $4 billion, charging over 6% interest.
- The UAE holds $3 billion, under similar terms.
The IMF’s current $7 billion program hinges on the continued rollover of these deposits — an arrangement that casts doubts over the long-term stability of Pakistan’s external sector.
Limited Access, High-Cost Borrowing
Pakistan’s access to international capital markets remains effectively blocked. Plans to raise $1 billion through Eurobonds and Panda bonds in the last fiscal year never materialized. With its credit rating deep in junk territory, Islamabad has had to rely on expensive commercial loans, often backed by guarantees from multilateral institutions like the Asian Development Bank (ADB).
The Ministry of Finance managed to secure $4.3 billion in commercial loans, mostly refinancing old Chinese loans or borrowing backed by the ADB. Notably, ADB disbursed $2.1 billion, exceeding its target by $500 million. In total, multilateral lenders provided $6.9 billion, including $2.1 billion from the IMF and $1.7 billion from the World Bank (which fell short of its pledged amount and has not committed any new budget support for FY26).
High-Cost Oil & Development Loans
Other funding sources included:
- Islamic Development Bank: $716 million
- Saudi Oil Facility: $200 million at a steep 6% interest rate
Project-based loans remained dismally low, which underscores the structural issue: most of Pakistan’s foreign borrowing is not development-focused, but aimed at plugging fiscal holes and propping up reserves.
Unsustainable Ratios and IMF Red Flags
The Ministry of Finance has acknowledged that Pakistan’s debt-to-GDP and gross financing needs-to-GDP ratios are well above sustainable levels. A financing need exceeding 15% of GDP is considered dangerous — and Pakistan is projected to stay above this threshold until at least FY28.
In its recent review, the IMF flagged several risks:
- Weak implementation of reforms
- Underperformance in tax collection
- Low reserves and high gross financing needs
- Political and social instability, threatening repayment capacity
According to IMF projections, Pakistan will require $70.5 billion in gross external financing over the next three fiscal years (FY26–FY28). These numbers are fluid and depend on export growth, remittances, and current account performance — all of which remain volatile.
Conclusion: A Ticking Clock
While the headline figure of $26.7 billion may suggest successful fundraising, the underlying story is far more complex — and concerning. Pakistan is borrowing heavily, but with limited long-term planning and a shrinking space for maneuver. The country remains heavily exposed to external shocks, high interest liabilities, and the goodwill of a few allies.
Unless structural reforms are accelerated and export-led growth is prioritized, Pakistan risks entering a debt trap that becomes harder to escape with each passing year.
