Pakistan’s external debt remains heavily concentrated among multilateral and bilateral lenders, which account for nearly 56 percent of the country’s total external obligations.
Out of an overall external debt stock of approximately $92 billion, economists warn that ongoing currency volatility could significantly affect debt servicing costs and the debt-to-GDP ratio.
Weakening US Dollar Adds Uncertainty
Recent signs of weakness in the US dollar against major global currencies have sparked fresh concerns among policymakers and analysts. While a softer dollar can reduce the dollar value of some obligations, economists caution that exchange rate fluctuations may still inflate Pakistan’s external liabilities in rupee terms, particularly if volatility persists.
In recent years, Pakistan’s external debt and liabilities hovered close to $130 billion, a trend largely attributed to the strengthening of the US dollar against currencies such as the euro, Japanese yen, and British pound.
The latest currency movements have introduced new uncertainty for emerging economies carrying large foreign debt burdens.
External Debt Rose 6% in FY25
According to the Ministry of Finance’s upcoming Debt Policy Statement, which is set to be tabled in parliament, Pakistan’s external debt rose by 6 percent year-on-year to reach $91.8 billion by the end of June 2025, reflecting an increase of nearly $5 billion.
Slight Decline in First Quarter of FY26
Data from the statement shows a modest improvement in the early months of the current fiscal year. During the first quarter of FY26, Pakistan’s external debt declined slightly by 0.4 percent, or $0.35 billion, bringing the total to $91.4 billion by the end of September 2025.
Multilateral Lending Drives Increase
The bulk of the increase in external debt stemmed from multilateral development partners, including the International Monetary Fund (IMF). Borrowing from these institutions rose by 8.7 percent, amounting to nearly $4 billion.
Meanwhile, commercial bank borrowing increased by $1.6 billion, primarily due to a $1 billion loan backed by an Asian Development Bank (ADB) policy-based guarantee.
Outlook Depends on Global Conditions
Finance officials noted that currency movements, borrowing patterns, and global financial conditions will continue to shape Pakistan’s external debt outlook in the coming quarters. Managing exchange rate risks and securing sustainable financing remain key challenges as the country navigates a fragile global economic environment.
