The International Monetary Fund (IMF) has released its latest report on Pakistan, forecasting a significant increase in the country’s external debt over the coming years. The report highlights the challenges and risks that Pakistan faces in managing its debt obligations.
A Mounting Burden
The IMF’s projection shows a substantial rise in Pakistan’s external debt, from $123.574 billion in 2022-23 to $130.850 billion in 2023-24. Furthermore, the debt is anticipated to reach $139.116 billion in 2024-25. This escalation is likely to push external debt to 37.3 percent of GDP for 2023-24, compared to 36.4 percent in the previous fiscal year.
Domestic Debt and Financing Challenges
Aside from external debt, Pakistan’s domestic debt is also on the rise. The projection sets domestic debt at Rs. 43.574 trillion for 2023-24 and Rs. 49.803 trillion for the subsequent year. These numbers indicate the severity of Pakistan’s debt situation.
Challenges to Debt Sustainability
The IMF report points out that Pakistan’s gross financing needs are substantial, primarily driven by hefty debt service payments and a dried-up external market financing. Moreover, a weak confidence level and credit rating downgrades have left Pakistan hovering just above default rating. To meet its debt obligations, Pakistan heavily relies on multilateral and official bilateral support.
Narrowing Path to Sustainability
With external financing becoming scarce and significant gross financing needs persisting in the foreseeable future, the risks to debt sustainability have grown more acute since the 7th-8th EFF reviews. The report suggests that if program policies are diligently implemented, along with macroeconomic prudence and sufficient multilateral and bilateral financing, public debt can remain sustainable in the medium term. However, any downward revisions to the baseline could push Pakistan’s debt towards unsustainability.
