Call for Restructuring Pakistan’s Debt Utilization

A think tank, Economic Policy & Business Development (EPBD), has urged a fundamental overhaul of how Pakistan uses its debt, recommending a shift of borrowed funds from unproductive spending to productive economic investments.

EPBD argues that Pakistan’s Rs7.2 trillion in yearly debt obligations should be channeled into initiatives that stimulate growth, instead of supporting bank profits and inefficient state-run enterprises.

The think tank asserts that a World Bank article featured in the latest United Nations Development Programme (UNDP) report supports this view. It explicitly states that Pakistan’s debt is predominantly used for consumption rather than investment and that public borrowing is hindering private sector credit.

The organization reported that Pakistan secures new debt equivalent to about 28% of its GDP annually, while allocating only 2% of GDP to development expenditures, highlighting a significant resource misallocation. Additionally, EPBD noted that the ratio of current consumption to actual development has worsened from 2.2:1 to 10.3:1 over 15 years, indicating a consistent move away from productive investments.

EPBD contends that Pakistan’s current strategy misuses borrowed capital by guaranteeing banking returns through government bond purchases and subsidizing state-owned enterprises (SOEs) that fail to generate economic returns.

The think tank suggests that debt should instead be used to boost manufacturing, improve export infrastructure, encourage technology adoption, and promote private sector growth, which creates jobs and generates sustainable returns for future debt servicing.

EPBD also pointed out that Pakistani businesses encounter financing costs of 11%, compared to a 5.5% regional average, making them less competitive. Meanwhile, banks secure guaranteed profits from public funds. Given that 59% of government debt is in floating-rate instruments, reducing policy rates from 11% to 6% could free up Rs3 trillion annually, which is currently directed to financial institutions rather than productive economic activities.

The World Bank has affirmed that Pakistan achieved a primary surplus in fiscal year 2025, creating fiscal room to reallocate debt utilization. Instead of maintaining the current pattern of consumption-focused borrowing, EPBD advocates directing these funds toward enhancing manufacturing competitiveness, developing exports, and expanding businesses, thereby strengthening Pakistan’s capacity to service its debt through productive economic activity.

Regional competitors are outperforming Pakistan by using borrowed funds for business development and industrial expansion, rather than subsidizing the banking sector and supporting SOEs. According to EPBD, their strategy generates 6% annual growth by channeling debt into activities that foster value, employment, and lasting economic returns.

EPBD emphasized that Pakistan must decide between what it described as wasteful debt utilization, which enriches financial institutions and SOEs, and productive debt deployment, which builds economic capacity.

The organization proposed an immediate policy adjustment to redirect borrowed resources away from unproductive consumption and toward manufacturing development, export infrastructure, technology adoption, and private sector expansion, which generates sustainable returns and employment opportunities.