Pakistan is facing a potential increase in external debt obligations as the value of the US dollar declines against other currencies such as the euro, Japanese yen, and British pound.
Currently, 56% of Pakistan’s $92 billion external debt consists of multilateral and bilateral loans. Over the past few years, the total external debt and liabilities hovered around $130 billion, primarily due to the stability of the US dollar compared to other currencies.
Recent Trends and Risks
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In recent days, the US dollar has started to weaken, raising concerns about a possible rise in Pakistan’s debt-to-GDP ratio in the current quarter if the trend continues.
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According to the Debt Policy Statement presented in Parliament, Pakistan’s external debt had increased 6% annually to $91.8 billion by June 2025, reflecting a $5 billion rise.
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During the first quarter of FY 2026, a minor 0.4% ($0.35 billion) decrease was recorded in external debt.
Implications
Economists warn that currency fluctuations could put additional pressure on Pakistan’s debt servicing obligations, potentially affecting foreign reserves, fiscal stability, and economic growth. The government is closely monitoring the situation to mitigate risks associated with debt and exchange rate volatility.
