Pakistan’s external debt and liabilities have climbed to $138 billion, with interest payments rising sharply to $3.59 billion in fiscal year 2025, according to the Federal Ministry of Finance. The increase has raised concerns about the country’s ability to service its debt amid global economic pressures.

Debt Composition and Interest Rates

The ministry stated that the majority of Pakistan’s external debt is concessional and long-term. Of the total $138 billion, approximately $92 billion is classified as external government debt. About 75 percent of this public debt has been obtained from multilateral and bilateral concessional sources, including institutions such as the World Bank and the Asian Development Bank.

The ministry clarified that Pakistan is paying an average interest rate of around 4 percent on its external loans, countering reports that suggest an 8 percent rate. Officials said claims of an 8 percent interest rate are misleading and do not reflect the actual financial burden on the country.

Interest payments rose from $1.99 billion in fiscal year 2022 to $3.59 billion in 2025, an increase of 80.4 percent. The ministry noted that this figure includes $1.50 billion paid to the International Monetary Fund (IMF), which includes $580 million in interest.

Breakdown of Debt Payments

The Ministry of Finance provided a detailed breakdown of the payments made in FY 2025. These include $1.54 billion to the Asian Development Bank, $1.25 billion to the World Bank, and $1.56 billion under the Naya Pakistan Certificates program. Additionally, $94 million was paid in interest to these institutions.

About $3 billion was paid under external commercial loans, including $327 million in interest. The ministry emphasized that the rise in interest payments is not solely due to an increase in the volume of loans but also due to global interest rate hikes and a weakened foreign exchange reserve position.

During 2022-23, Pakistan’s foreign exchange reserves had fallen to less than one month of imports, prompting the government to seek assistance through the IMF Extended Fund Facility (EFF) program and multilateral funding to stabilize the situation.

Global Interest Rates and Economic Pressures

The increase in global interest rates has added pressure on Pakistan’s external debt obligations. The U.S. Federal Reserve raised interest rates to 5.25-5.50 percent, affecting the cost of borrowing for countries with significant external debt. Despite these challenges, the government has reaffirmed its commitment to responsible debt management and economic stability.

According to the ministry, the government has been working to restore its foreign exchange reserves through a combination of IMF support, multilateral funding, and economic reforms. However, the rising interest payments pose a significant challenge for the country’s fiscal sustainability.

Officials have emphasized that Pakistan’s debt is largely concessional, meaning it comes with lower interest rates and longer repayment periods compared to commercial loans. This, they argue, provides some relief in managing the debt burden.

The ministry’s statement comes amid growing concerns about Pakistan’s ability to meet its debt obligations, particularly with the global economic climate remaining uncertain. The government is expected to outline further measures to address the rising debt burden in the coming months.