Pakistan is grappling with a significant external debt crisis, with alarming figures indicating that a staggering 92% of its total external debt is owed to just three major sources: multilateral institutions, bilateral creditors, and international bonds. As of the latest report, the country’s total external debt and liabilities stand at a troubling $133 billion, with public external debt reaching $88.578 billion by the end of September 2024.

Among these creditors, China stands at the forefront, with the country being the largest bilateral lender to Pakistan. The situation is compounded by the growing share of external debt from multilateral organizations like the World Bank (WB), Asian Development Bank (ADB), and the International Monetary Fund (IMF), which collectively account for over half of Pakistan’s debt. These institutions offer loans at relatively low-interest rates, but the rising debt burden remains a major concern.

Breaking down Pakistan’s external debt composition, it is evident that more than half (56%) of the debt is sourced from multilateral lenders, while bilateral loans contribute approximately 28%. The remaining 14% comes from commercial sources, with international bonds making up 8% and commercial banks contributing 6%.

The Pakistani government’s efforts to manage this rising debt have faced setbacks. The Ministry of Finance has yet to finalize its Debt Policy Statement for January 2025, and there have been delays in reporting debt bulletins. Despite these issues, the government continues to secure debt disbursements from major creditors, including Saudi Arabia, the UAE, and multilateral institutions like the World Bank and ADB.

In the first quarter of FY25, external debt grew by $2 billion, indicating that Pakistan’s reliance on foreign loans continues to escalate. While loans from multilateral and bilateral sources are generally offered at concessional rates, they still pose risks due to exchange rate fluctuations and Pakistan’s vulnerability to economic shifts.

As the country faces increasing debt pressures, it remains to be seen how Pakistan will balance its debt obligations with its economic priorities. With external debt now accounting for a substantial portion of the nation’s public finances, the government will need to take decisive steps to ensure fiscal sustainability and avoid a debt crisis.