Islamabad, July 18, 2025 — Pakistan is grappling with a daunting financial challenge as it faces over $23 billion in external debt repayments for the fiscal year 2025, which commenced on July 1, according to a recent media report. This substantial debt servicing obligation underscores the ongoing economic strain on the South Asian nation, with debt repayment constituting a significant portion of its annual budget.
Approximately $12 billion in deposits from bilateral creditors, often referred to as “friendly nations,” is expected to be rolled over, providing some relief. However, Pakistan must still manage $11 billion in repayments, placing considerable pressure on its foreign exchange reserves and fiscal resources. The country’s total debt stood at PKR 76.01 trillion (approximately $272 billion) as of March 2025, comprising PKR 51.52 trillion in domestic debt and PKR 24.49 trillion ($87.4 billion) in external debt, according to the Pakistan Economic Survey 2024-25.
Major repayments this fiscal year include $1.7 billion for two bond maturities, $2.3 billion in commercial loans, $2.8 billion to multilateral creditors such as the World Bank, Asian Development Bank, Islamic Development Bank, and Asian Infrastructure Investment Bank, and $1.8 billion in bilateral loans. These obligations highlight Pakistan’s heavy reliance on external borrowing, with debt servicing accounting for 46.7% of the federal budget, totaling PKR 8.2 trillion for both domestic and external debt in 2025-26.
Despite claims of an economic turnaround by the government led by Prime Minister Shehbaz Sharif, Pakistan’s debt burden remains a critical challenge. The country’s foreign exchange reserves, currently at $16.64 billion as of June 2025, are insufficient to cover the large external debt repayments due over the next few years, raising concerns about fiscal stability. Finance Minister Muhammad Aurangzeb has expressed optimism, citing a projected GDP growth of 2.7% for 2025 and a reduction in the debt-to-GDP ratio from 68% to 65%. However, analysts warn that without structural reforms and sustainable fiscal policies, Pakistan’s economic vulnerabilities will persist.
The International Monetary Fund (IMF) plays a pivotal role in Pakistan’s economic strategy, with a $7 billion program under review to address fiscal and current account deficits. Recent rollovers, including $3.4 billion in commercial loans from China, have provided temporary relief, but Pakistan’s dependence on such measures underscores its precarious financial position. While Pakistan has made progress in rebuilding reserves, securing sufficient external financing remains a significant challenge given the large maturities and lenders’ existing exposures.
As Pakistan navigates this fiscal year, the government faces the dual task of meeting its debt obligations and implementing reforms to bolster economic resilience. Failure to address these challenges could exacerbate the risk of default, with far-reaching implications for the nation’s economy and its citizens.
