Pakistan’s Debt Repayment Burden
Deputy Finance Minister Ali Pervaiz Malik announced that Pakistan must repay $100 billion in external debt over the next four years, a significant financial challenge. The government plans to meet this obligation by securing rollovers from bilateral creditors such as Saudi Arabia, China, the UAE, and Kuwait. This debt repayment will be 10 times larger than Pakistan’s current foreign exchange reserves, which stand at $9.4 billion.
IMF Support and Remaining Financial Gaps
Despite signing a new $7 billion agreement with the International Monetary Fund (IMF), Pakistan still faces a $5 billion financing gap for the period from 2024 to 2026, according to Finance Minister Muhammad Aurangzeb. This gap adds further strain on the country’s already stretched financial resources, as external financing needs have not been fully addressed by the IMF program.
Rollovers as the Primary Strategy
For the fiscal year 2024-25 alone, Pakistan must repay $18.8 billion in external debt. The government intends to meet these obligations through rollovers, following a similar strategy used in previous years. Countries like Saudi Arabia, China, and the UAE are expected to play key roles in providing these rollovers, but this approach raises concerns about the long-term sustainability of Pakistan’s debt repayment strategy.
Limited Options for Debt Restructuring
When questioned about whether Pakistan would pursue debt restructuring, Ali Pervaiz Malik did not provide a clear answer. The reliance on rollovers suggests the government is focused on managing the debt year by year, rather than implementing structural reforms to reduce the debt burden. The government’s short-term approach has already led to delays in securing the IMF’s 37-month Extended Fund Facility (EFF), with approval contingent on creditor assurances for debt rollovers.
Pakistan’s Vulnerability to External Shocks
Opposition leader Omar Ayub Khan pointed out that Pakistan’s debt profile is highly vulnerable to rising interest rates and fluctuating global oil prices. Political instability in the Middle East and the war in Ukraine could also place further pressure on the rupee-dollar exchange rate. Despite $9.5 billion in foreign exchange reserves, Pakistan’s capacity to absorb economic shocks remains weak.
Future Debt Repayment Schedule
Pakistan faces significant repayment obligations on sovereign bonds, including $500 million due in September 2025, $1.3 billion in April 2026, and $1.5 billion in December 2027. Director General of Debt Mohsin Chandna emphasized the need to extend the maturity profile of Pakistan’s debt to manage these upcoming obligations. However, he admitted that the country is still heavily dependent on external support to meet its financing needs.
IMF Conditions and Fiscal Pressures
The IMF program includes stringent conditions, such as the elimination of subsidies, which has already caused challenges for the government. Pakistan had to assure the IMF that no federal or provincial subsidies would be offered during the 37-month program period, after the Punjab government’s electricity subsidy caused concerns.
Finance Minister Aurangzeb also mentioned that the IMF aims to increase the agricultural income tax to 45%, aligning it with federal tax rates. This move could add further strain on Pakistan’s economy, particularly in the agricultural sector.
Conclusion
Pakistan’s $100 billion debt repayment challenge over the next four years will be a test of its financial management and political will. With rollovers as the main strategy, the country remains vulnerable to external shocks and interest rate changes. A long-term solution, such as restructuring or more sustainable financing strategies, is urgently needed to stabilize the economy and reduce the burden of external debt.