Debt-ridden Pakistan is about to face a PKR 6,552,700,000,000 bomb in a few months

Economic Times

21-07-2025

Pak in Debt: Pakistan is facing a $23 billion external debt repayment bill this fiscal year, the highest in its history. Nearly half of the federal budget is now going to debt servicing. Even as Islamabad seeks bailouts and rollovers from allies like Saudi Arabia and China, the government continues to spend billions on defence deals. With no guaranteed relief and increasing pressure from lenders, Pakistan's financial future is hanging by a thread.
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Lifeline or liability? $12 billion in temporary deposits
$5 billion from Saudi Arabia
$4 billion from China
$2 billion from the UAE
$1 billion from Qatar
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$11 billion still to pay regardless
$1.7 billion in international bond repayments
$2.3 billion in commercial loan payments
$2.8 billion to multilateral creditors including the World Bank, Asian Development Bank, Islamic Development Bank, and Asian Infrastructure Investment Bank
$1.8 billion in bilateral loan repayments
Debt now consumes nearly half of federal budget
Military spending continues despite fiscal strain
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A crisis years in the making
Pakistan has kicked off its new fiscal year with a massive repayment bill of over $23 billion in external debt, The News reported, citing the Pakistan Economic Survey 2024–25. The government must settle these payments during 2025–26, and failure to do so could place the country on the edge of default.By the end of March 2025, the country's total public debt stood at Rs 76.01 trillion. That includes Rs 51.52 trillion in domestic borrowing (roughly $180 billion) and Rs 24.49 trillion (around $87.4 billion) in external loans. The external debt is made up of two parts: money borrowed by the government and funds drawn from the International Monetary Fund (IMF).This debt has built up over years of economic mismanagement, stop-gap funding, and repeated bailouts. But this year's repayment demand has exposed just how little room the government has left to manoeuvre.Of the $23 billion Pakistan must repay this year, $12 billion comes in the form of temporary deposits from four so-called friendly nations, as reported by PTI. These are:These funds are not permanent and are only useful if rolled over. If any of these countries decide to pull out, Pakistan will be forced to pay them back in full this year.The News cautioned, 'The situation can worsen if friendly countries refuse to grant rollovers on their deposits, which would make it compulsory for the government to make payments.'This leaves the government heavily dependent on diplomatic goodwill, not financial strength. And there are signs that even goodwill is wearing thin.Even if all the temporary deposits are extended, Pakistan must still cough up around $11 billion in repayments to external creditors this year, as reported by PTI. This includes:This pressure comes at a time when Pakistan's foreign reserves are already under stress. The country has limited sources of fresh income and is still waiting for a new extended programme from the IMF.Pakistan has earmarked Rs 8.2 trillion for domestic and external debt servicing in its 2025–26 budget. That figure makes up 46.7 per cent of the total federal budget of Rs 17.573 trillion.Put simply, nearly half the money Islamabad plans to spend this year is going towards repaying old loans.There is now less left for development, public services, or even basic maintenance of existing infrastructure. Education, health, and social welfare continue to take a backseat while interest payments dominate national spending.Despite this bleak financial outlook, Pakistan's defence expenditure has not slowed. While seeking bailouts and rollovers, the government has pressed ahead with large arms deals.It has finalised a strategic partnership with Turkey, which includes a $900 million drone deal and more than 700 loitering munitions. The partnership also covers intelligence sharing and broader security cooperation.The alliance has been described as one meant to 'do jihad against India' by military sources cited in reports. There are also ambitious trade goals of $5 billion tied into the arrangement.Additionally, Pakistan is reportedly acquiring 40 J-35A stealth fighter jets from China, supposedly at a discounted rate.These deals reflect the enduring priority given to military parity, particularly with India, even as the country's own economy remains fragile.Pakistan's current position is the result of decades of reckless borrowing, lack of fiscal discipline, and a powerful military establishment unwilling to scale back.The military, which has long seen itself as the guardian of national stability, has also been a major recipient of foreign aid and loans. Much of that money, critics say, has gone not into productive assets or economic upliftment but into defence and patronage.The result is a hollow economy, propped up by emergency funding, foreign deposits, and repeated IMF interventions.While Pakistan hopes for another round of diplomatic backing, there's no guarantee this time. Saudi Arabia has already begun demanding more reform and transparency before offering further help. China, facing its own economic headwinds, is also proceeding more cautiously.If even one major depositor refuses to roll over its funds, Islamabad will have no choice but to pay. And with limited reserves and few avenues for quick capital, that could lead to further economic distress or forced austerity.For now, Pakistan is racing the clock. The first repayments are due in a matter of months. And there's little sign of a long-term fix in sight.(With inputs from PTI, IMF)