Pakistan’s external debt has significantly increased over the past decade, reaching $135.1 billion in 2025, up from $68.67 billion in 2015, as reported by the World Bank. This substantial rise highlights the country’s escalating reliance on foreign borrowing to fulfil its financial requirements. The overall debt stock comprises various components, including $107.07 billion in public and publicly guaranteed loans, $17.58 billion in private non-guaranteed debt, and $10.45 billion in short-term borrowing.

The public debt segment reveals that multilateral institutions represent the largest share, amounting to $56.83 billion. Additionally, Pakistan’s obligations include $42.43 billion owed to bilateral lenders and $7.8 billion to private creditors. This growing debt profile indicates a concerning trend in the nation’s financial management and sustainability.

China’s Role as a Major Creditor

Among its creditors, China stands out as Pakistan’s largest individual lender, with outstanding loans totalling $22.4 billion. This figure underscores the deepening financial ties between the two nations, particularly in the context of China’s Belt and Road Initiative. Following China, the World Bank is the second-largest creditor, with an outstanding amount of $19.2 billion. The Asian Development Bank (ADB) follows closely, with Pakistan’s debt to the institution recorded at $16.83 billion.

The reliance on Chinese loans raises questions about the long-term implications for Pakistan’s economic independence. The terms of these loans, including interest rates and repayment schedules, are critical factors that will influence the country’s financial stability in the years to come. As the debt burden grows, the need for effective management and strategic planning becomes increasingly urgent.

The report also highlights the differences in borrowing costs between various types of creditors. Loans from official sources typically have an average maturity of 16 years, a grace period of four years, and an interest rate of 3.6%. In contrast, private credit carries a much higher average interest rate of 8.6%, with a repayment period of three years and a grace period of just one year. This disparity in borrowing costs further complicates Pakistan’s financial landscape.

Regional Debt Trends and Recent Developments

In the broader context of the Middle East, North Africa, Afghanistan, and Pakistan region, there have been improvements in debt-service and interest ratios. However, the external debt-to-gross national income (GNI) ratio for the region has risen from 26.7 per cent to 29.4 per cent in 2025. This increase marks the most significant annual rise recorded by any region, indicating a persistent accumulation of external debt.

Pakistan has recently benefited from some financial relief through new financing and loan extensions. Notably, China has extended the maturity of $2 billion in loans, providing some breathing space for the country. Additionally, the International Monetary Fund (IMF) has disbursed $2.3 billion under its Extended Fund Facility and Resilience and Sustainability Facility programmes. These measures are aimed at bolstering Pakistan’s long-term economic stability.

The interplay of these financial dynamics will be crucial for Pakistan as it navigates its economic challenges. The reliance on external debt, particularly from China, necessitates careful consideration of future borrowing strategies and economic policies to ensure sustainable growth and financial independence.

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