Islamabad – Concerns surrounding Pakistan’s external debt obligations have been addressed by the Ministry of Finance, which has moved to clarify what it calls “misleading” claims regarding interest payments. Recent reports suggested Pakistan was paying as much as eight percent interest on its external loans, a figure the Ministry firmly disputes. The clarification comes as Pakistan navigates a complex economic landscape, heavily reliant on international borrowing and currently under an International Monetary Fund (IMF) Extended Fund Facility (EFF) program.
The Ministry’s statement, released on Sunday, February 22, 2026, underscores the importance of understanding the nuances of Pakistan’s debt structure. While acknowledging a significant increase in public external debt interest outflows – rising from $1.99 billion in fiscal year 2022 to $3.59 billion in fiscal year 2025, an increase of 80.4 percent – officials maintain the overall average cost of borrowing remains considerably lower than the reported eight percent. This clarification is crucial for informed public discourse and accurate assessment of Pakistan’s financial health, particularly as the nation strives for macroeconomic stability.
Dr. Aisha Khan, a senior economist specializing in emerging markets at the University of Oxford, notes that perceptions of debt sustainability are heavily influenced by interest rate levels. “A perceived high interest rate can spook investors and exacerbate existing economic vulnerabilities,” she explains. “Transparency and accurate reporting are therefore paramount, especially for countries like Pakistan that are actively seeking to attract foreign investment and maintain access to international capital markets.” The Ministry’s response appears to be a direct attempt to manage these perceptions and reassure stakeholders.
Understanding Pakistan’s External Debt Composition
The Ministry of Finance emphasized the need to differentiate between total external debt and liabilities, which currently stand at $138 billion, and external public (government) debt, which amounts to approximately $92 billion. The $138 billion figure encompasses a broad range of obligations, including debt of public sector enterprises, bank borrowings, and private-sector external debt. This distinction is vital for a clear understanding of the country’s financial commitments.
A significant portion – nearly 75 percent – of Pakistan’s external public debt is comprised of “concessional and long-term financing” obtained from multilateral institutions, excluding the IMF, and bilateral development partners. This concessional financing typically carries lower interest rates and longer repayment periods compared to commercial loans. Only around 7 percent of the debt consists of commercial loans, and another 7 percent relates to long-term Eurobonds. This composition, the Ministry argues, is the primary reason why the claim of an 8 percent average interest rate is misleading. The overall average cost of external public debt is approximately 4 percent, reflecting the predominantly concessional nature of the borrowing portfolio. Dawn reported on the Ministry’s clarification on February 22, 2026.
Interest Payment Increases and Global Factors
While the average interest rate remains relatively low, the Ministry acknowledged a substantial increase in absolute interest payments. Public external debt interest outflows rose by $1.60 billion between fiscal years 2022 and 2025. A breakdown of debt servicing payments to specific creditors reveals the following: the IMF received $1.50 billion, including $580 million in interest; Naya Pakistan Certificates payments totaled $1.56 billion, including $94 million in interest; the Asian Development Bank received $1.54 billion, including $615 million in interest; the World Bank received $1.25 billion, including $419 million in interest; and external commercial loans amounted to nearly $3 billion, including $327 million in interest payments. Radio Pakistan also covered the Ministry’s statement, highlighting the detailed breakdown of payments.
The Ministry attributes this increase not solely to an expansion of the debt stock, but also to prevailing global interest rate dynamics. The US Federal Reserve’s aggressive monetary policy tightening in response to the 2021-22 inflation surge – raising the federal funds rate from 0.75-1.00 percent in May 2022 to 5.25–5.50 percent by July 2023 – has significantly impacted international borrowing costs. Although rates have since moderated to around 3.75 percent, they remain elevated compared to 2022 levels. This global tightening has contributed to higher external interest payments for Pakistan, as it has for many other developing nations. Brecorder reported on the Ministry’s explanation of the global interest rate impact.
The Role of the IMF and Concessional Financing
The Ministry also highlighted the crucial role played by the IMF and other concessional partners in stabilizing Pakistan’s economy. During 2022-23, Pakistan faced severe balance of payments pressures, with foreign exchange reserves falling below one month of import cover. In response, the government entered into an IMF Extended Fund Facility (EFF) arrangement and mobilized financing from multilateral and other concessional partners. These measures were instrumental in rebuilding foreign exchange reserves and strengthening the country’s external account position. The additional inflows have primarily originated from these concessional sources and the IMF’s EFF, rather than from increased commercial borrowing.
The IMF’s involvement is a recurring theme in Pakistan’s economic history. The country has sought IMF assistance numerous times to address balance of payments crises and stabilize its economy. While IMF programs often arrive with stringent conditions, they also provide crucial financial support and help to restore investor confidence. The current EFF program, approved in 2023, is aimed at addressing Pakistan’s structural economic challenges and promoting sustainable growth.
the Ministry reiterated its commitment to prudent debt management, transparency, and the continued strengthening of Pakistan’s macroeconomic stability. Accurate representation of debt statistics is considered essential for informed public discourse, and stakeholders are encouraged to consider the full context of Pakistan’s external debt structure and evolving global financial conditions.
Key Takeaways
- The Ministry of Finance has refuted claims that Pakistan is paying up to 8 percent interest on its external loans, stating the figure is “misleading.”
- The average cost of Pakistan’s external public debt is approximately 4 percent, due to a large proportion of concessional financing.
- Interest payments have increased in absolute terms, largely due to rising global interest rates and increased debt servicing to creditors like the IMF, ADB, and World Bank.
- The IMF’s Extended Fund Facility and financing from other concessional partners have been crucial in stabilizing Pakistan’s economy.
Looking ahead, Pakistan’s debt sustainability will depend on a number of factors, including its ability to maintain access to concessional financing, implement structural reforms to boost economic growth, and manage its external debt effectively. The next key development to watch will be the ongoing reviews of Pakistan’s IMF program, which will determine the continued disbursement of funds and the implementation of further economic reforms. The IMF is scheduled to conduct its next review in May 2026, assessing Pakistan’s progress towards meeting the program’s targets.
We encourage readers to share their perspectives on Pakistan’s economic challenges and the government’s debt management strategies in the comments below. Your insights are valuable as we continue to cover this critical story.
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