Pakistan's External Debt: Clarifications from the Finance Ministry

The Ministry of Finance of Pakistan has issued a statement addressing claims that the country is paying up to eight percent interest on external loans, labeling these assertions as “misleading.” The ministry clarified that public external debt interest outflows are projected to rise by 80.4 percent from fiscal year 2022 to fiscal year 2025, rather than the previously reported 84 percent. Currently, Pakistan's total external debt and liabilities amount to approximately $138 billion, which includes a variety of obligations such as public and publicly guaranteed debt, private-sector external debt, and intercompany liabilities.

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The ministry emphasized the importance of distinguishing between total external debt and external public debt, which is approximately $92 billion. Notably, around 75 percent of this public debt consists of concessional and long-term financing from multilateral institutions and bilateral partners, with only about 7 percent attributed to commercial loans and another 7 percent to long-term Eurobonds. The average cost of external public debt is approximately 4 percent, reflecting the predominantly concessional nature of the borrowing portfolio.

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Interest payments on public external debt are projected to increase from $1.99 billion in fiscal year 2022 to $3.59 billion in fiscal year 2025, marking an increase of $1.60 billion. The ministry provided detailed figures on debt servicing payments to various creditors, including the International Monetary Fund (IMF), which received $1.50 billion, of which $580 million was interest. Other payments included $1.56 billion to Naya Pakistan Certificates and $1.54 billion to the Asian Development Bank.

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The finance ministry attributed the increase in interest payments not solely to an expansion in the debt stock but also to heightened balance of payments pressures faced by Pakistan during 2022-23. This situation led to a decline in foreign exchange reserves, prompting the government to enter into an IMF Extended Fund Facility arrangement and seek financing from multilateral partners. The ministry noted that global interest rate dynamics, particularly the U.S. Federal Reserve's increase in the federal funds rate from 0.75-1.00 percent in May 2022 to 5.25-5.50 percent by July 2023, have also contributed to elevated international borrowing costs.

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The Ministry of Finance reiterated its commitment to prudent debt management and transparency, emphasizing the necessity for accurate representation of debt statistics to facilitate informed public discourse. The ministry encouraged stakeholders to consider the full context of Pakistan's external debt structure and the evolving global financial conditions.

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While the ministry's clarifications aim to provide a comprehensive understanding of Pakistan's external debt, critics argue that the rising interest payments and overall debt levels pose significant risks to the country's economic stability. They call for more transparency and accountability in how debt is managed and reported.

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“Accurate representation of debt statistics is essential to informed public discourse, and stakeholders are encouraged to consider the full context of Pakistan’s external debt structure and evolving global financial conditions.” — Ministry of Finance, Pakistan

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“While interest payments have increased in absolute terms, this rise cannot be attributed solely to an expansion in the debt stock.” — Ministry of Finance, Pakistan

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“This global monetary tightening has kept international borrowing costs elevated and contributed to higher external interest payments,” the finance ministry said.” — Ministry of Finance, Pakistan

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