PAKISTAN faces a debt crisis that exposes the failure of borrowed growth models.
The country’s total debt stock reached Rs 74.936 trillion by April 2025, marking a Rs 6.022 trillion increase in just ten months. This surge represents a 9% jump from Rs 68.914 trillion in June 2024, driven primarily by domestic borrowing that rose 11.37% to Rs 52.523 trillion. External debt climbed by Rs 659 billion during the same period, reaching Rs 22.413 trillion by April 2025. The rupee’s depreciation amplified this burden, with the weighted average exchange rate rising from Rs 278.37 per dollar in June 2024 to Rs 280.97 in April 2025. These numbers reflect Pakistan’s dependence on continuous borrowing to finance budget deficits.
China is Pakistan’s largest bilateral creditor, holding approximately $29 billion in loans that constitute 22% of Pakistan’s total external debt of $133 billion. This financial relationship centers on the China-Pakistan Economic Corridor (CPEC), part of China’s Belt and Road Initiative, with investments exceeding $60 billion. The CPEC aims to connect Gwadar port to China’s Xinjiang region through 3,000 kilometers of infrastructure including roads, railways and pipelines. For China, this provides an alternative route to the Strait of Malacca for energy imports. For Pakistan, it represents the largest infrastructure project in the country’s history, funded through commercial loans, concessional loans and grants. Certain foreign financial institutions offer commercial loans at higher interest rates compared to multilateral development banks. In March 2025, a $1 billion loan with a floating interest rate of 7.5% was repaid, while an additional $2 billion loan was extended for another year. Furthermore, debt payments totaling $3.4 billion were rescheduled. These developments reflect a recurring pattern of overreliance on external financial support to address short-term fiscal challenges. Currency swap agreements have been negotiated, and debt repayment timelines extended to 2027, underscoring the country’s ongoing difficulty in meeting its financial obligations on time.
Pakistan’s borrowing surge stems from persistent revenue shortfalls. The Federal Board of Revenue collected Rs 10.233 trillion between July and May of fiscal year 2025, missing its target of Rs 11.241 trillion by approximately one trillion rupees. Despite tax collection growing 26% compared to the previous year, the government failed to meet budgetary requirements. Lower imports and slowing economic growth contributed to revenue shortfalls, forcing the government to borrow from domestic and external sources. The State Bank of Pakistan emphasized the need for sharp acceleration in tax revenue growth to meet annual targets.
Pakistan received its 24th IMF bailout since 1958, with the latest $1 billion package approved recently. The country faces $100 billion in foreign debt repayments over the next four years, including $18 billion in the current fiscal year. This repayment schedule exceeds Pakistan’s capacity to generate foreign exchange through exports. The IMF imposed eleven new structural conditions on the latest bailout, covering governance reform, financial sector strategy, parliamentary budget approval and development spending commitments. These conditions acknowledge instability and link economic assistance to conflict resolution with India, recognizing that military tensions pose “enterprise risks” to financial programs. Pakistan’s export performance reveals the underlying weakness that perpetuates debt dependency. Export earnings peaked at 15% of GDP in the early 1990s before declining to approximately 8% currently. This 25-year stagnation severely limits the country’s ability to generate foreign exchange. The export decline occurred despite massive infrastructure investments and Chinese financing. The failure to translate borrowed capital into productive capacity demonstrates fundamental structural problems in Pakistan’s economic model. Political instability prevents long-term reforms necessary for export competitiveness and sustainable growth.
World Bank data shows 45% of Pakistanis live below the poverty line, with extreme poverty affecting 16.5% of the population compared to 4.9% previously. These figures predate the 2022 floods and recent inflation spikes, suggesting current poverty levels exceed reported statistics. The rise in poverty took place during years of significant foreign investment and multilateral lending. Infrastructure projects funded through major economic initiatives failed to create sufficient employment or enhance living standards for the country’s 230 million people. The debt-driven growth approach resulted in assets that primarily served the interests of external creditors, while the local population faced worsening economic conditions.
Pakistan’s external debt structure reveals dangerous concentration among a few sources. Multilateral institutions hold 56% of external debt, while China dominates bilateral lending. International bonds constitute a smaller portion, with 84% of loans from concessional sources and 14% from commercial lenders. Recent disbursements included $2 billion from Saudi Arabia, $1 billion from UAE, $2.2 billion from World Bank and $1.3 billion from Asian Development Bank. These inflows represent temporary relief rather than solutions to underlying fiscal problems. The government missed deadlines for presenting debt policy statements to parliament, indicating poor debt management practices. Pakistan’s current trajectory leads toward debt unsustainability. The country operates an economic model based entirely on bilateral and multilateral borrowing rather than productive investment and export growth. Foreign-funded infrastructure projects under major infrastructure initiatives led to development of physical assets but did not generate adequate returns to meet debt obligations. A combination of stagnant exports, political uncertainty, weak revenue collection and rising poverty has created an environment where debt servicing is increasingly challenging. Continued dependence on bailouts and debt rollovers highlights the country’s struggle to shift toward a self-sustaining growth model.
— The writer is an educator, based in Sindh.
