🇵🇰 Pakistan Faces $23 Billion External Debt Repayment in FY2025-26
Government hopes for friendly rollovers; bond market strategies uncertain
ISLAMABAD – Pakistan is set to repay over $23 billion in external debt during the financial year 2025-26, covering a mix of bilateral, multilateral, commercial, and bond-related obligations, according to official sources.
Of this amount, $12 billion comprises foreign deposits, mainly from friendly nations, including $5 billion from Saudi Arabia, $2 billion from the UAE, and $1 billion from Qatar, along with $700 million from Kuwait. These are expected to be rolled over, easing the repayment burden.
The remaining $11 billion in debt servicing includes repayments to international financial institutions, bondholders, and commercial lenders. A notable maturity includes $500 million Eurobond due in September 2025, originally launched in 2015 at an 8.25% interest rate. Another $1 billion Eurobond, launched in April 2021 at 6%, is set to mature this fiscal year.
Breakdown of Major Debt Obligations:
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Eurobond repayments: $1.7 billion (including interest)
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Commercial loans: $2.3 billion
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Multilateral institutions (World Bank, ADB, AIIB, IDB): $2.8 billion
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Bilateral creditors: $1.8 billion
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SAFE deposits from China: $4 billion
The Ministry of Finance and the State Bank of Pakistan (SBP) are coordinating repayment plans. $9 billion of the obligations fall under the SBP’s domain, including IMF loans and non-budgetary foreign deposits.
Panda Bonds and Market Strategy
Although there was initial optimism about launching a Panda bond in FY2025-26, technical delays and unfavorable market conditions have stalled progress. Similarly, issuing new Eurobonds or Sukuk bonds seems unlikely due to:
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High global interest rates
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Pakistan’s risk premium
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Domestic political instability
A bond issuance with a potential 10% interest rate is not considered feasible under current conditions.
Debt-to-GDP Ratio Under Pressure
Pakistan’s debt-to-GDP ratio, which had previously improved due to inflated nominal GDP during high inflation years, is now expected to worsen. Slower growth and declining inflation will expose underlying debt vulnerabilities in the coming months.
Conclusion
With over $23 billion in external obligations, Pakistan’s economic team faces a challenging fiscal year. While rollovers from friendly countries offer temporary relief, the limited borrowing options, rising global rates, and political uncertainty complicate long-term debt sustainability.