Pakistan’s $100 Billion Debt Repayment Challenge: Four Years of Rollovers and Economic Uncertainty

External Debt Burden

Pakistan’s Deputy Finance Minister, Ali Pervaiz Malik, announced that the country will face $100 billion in external debt repayments over the next four years. This figure represents a significant challenge for the country, as the federal government’s current foreign exchange reserves stand at $9.4 billion—one-tenth of the total debt due. The government plans to meet these repayments by securing rollovers from bilateral creditors.

Breakdown of Debt Repayments

The $100 billion repayment will take place from 2024 to 2027, covering debts owed by the federal government. These payments exclude liabilities managed by the central bank and the current account deficit. The government has little to no alternative strategy other than requesting rollovers from lenders each year.

For the 2024-25 fiscal year alone, Pakistan must pay $18.8 billion in external debt. The government plans to cover this amount through rollovers, similar to past payments. The rollovers will mainly come from countries like Saudi Arabia ($5 billion), China ($4 billion), the UAE ($3 billion), and Kuwait ($700 million).

IMF Program and Financing Gap

Despite Pakistan securing a new $7 billion program from the International Monetary Fund (IMF), the country still faces a $5 billion financing gap for the period 2024 to 2026. Finance Minister Muhammad Aurangzeb informed the National Assembly that even after the IMF agreement, external financing needs are not fully covered.

The IMF identified a shortfall of $2 billion for the current fiscal year. Pakistan has secured $600 million so far—reported as the most expensive loan in the country’s history. The remaining $1.4 billion gap remains unaddressed, with further challenges expected for the next two fiscal years.

Rollovers and Debt Strategy

Minister Ali Pervaiz Malik clarified that the government is relying heavily on rollovers, replacing old debt with new loans. He expressed confidence that debt payments will continue to be managed in this manner. However, the IMF has warned that Pakistan’s external financing gap needs urgent attention.

The government’s debt management strategy, based on rollovers, has led to delays in securing an IMF board meeting date. The IMF is expected to approve a $7 billion Extended Fund Facility (EFF) on the assurance that debt rollovers will continue, but only for one year.

Debt Restructuring Unlikely

When asked about the possibility of debt restructuring, Ali Pervaiz Malik avoided a direct response, signaling that the government may not be considering restructuring at this stage. PPP leader Nafisa Shah and former Finance Minister Syed Naveed Qamar raised concerns about whether the government has a comprehensive strategy beyond relying on rollovers.

China, one of Pakistan’s largest creditors, reportedly raised similar concerns during the Finance Minister’s recent visit, asking for clarity on how Pakistan plans to manage its long-term debt obligations.

Vulnerability to Economic Shocks

Opposition leader Omar Ayub Khan warned that Pakistan’s debt profile is highly exposed to interest rate risks and fluctuating crude oil prices. He also expressed concern about the political instability in the Middle East and Ukraine, which could further pressure the rupee-dollar exchange rate.

While Pakistan’s foreign exchange reserves have grown to $9.5 billion, Finance Minister Aurangzeb admitted that this cushion is insufficient to offer real economic security. The government’s reliance on rollovers leaves the economy vulnerable to external shocks.

Sovereign Bond Payments and Interest Rates

The Director General of Debt, Mohsin Chandna, outlined upcoming sovereign bond repayments, including $500 million due in September 2025, $1.3 billion in April 2026, and $1.5 billion in December 2027. Pakistan will need to manage these repayments while also dealing with the overall debt burden. Chandna suggested extending the maturity profile of the country’s debt and reducing the gross financing needs to ease the strain.

Chandna also noted that while a recent reduction in U.S. Federal Reserve interest rates could make emerging market debt more attractive, Pakistan’s high domestic interest rates remain a challenge. The impact of recent cuts in domestic rates will only be felt after six months.

Conclusion

Pakistan’s strategy to manage its $100 billion debt repayments relies heavily on securing annual rollovers from bilateral creditors. Despite efforts to cover the debt through new loans, the country’s economic situation remains precarious. With a significant financing gap, reliance on high-interest loans, and vulnerability to global economic shifts, Pakistan faces significant challenges in the years ahead.