ISLAMABAD: The International Monetary Fund (IMF) has expressed concern over Pakistan’s fragile ability to manage its external debt, estimating that the country’s external financing needs under the Extended Fund Facility (EFF) program have surged to $62.6 billion over the next three years.
If projected over a five-year period, from 2024-25 to 2028-29, these financing needs would rise to $110.5 billion.
According to the IMF’s staff report, Pakistan is required to repay $18.813 billion in external debt during the current fiscal year. This amount will increase to $20.088 billion in 2025-26 and $23.714 billion in 2026-27. Even after the three-year EFF program concludes, the country’s financing requirements will remain high, reaching $24.625 billion in 2027-28 and $23.235 billion in 2028-29.
The IMF has warned that Pakistan’s capacity to repay its debt is highly vulnerable, heavily dependent on consistent policy implementation and timely external financing. By September 2024, the IMF’s exposure to Pakistan is expected to reach Special Drawing Rights (SDR) 6,816 million, equivalent to 336% of Pakistan’s quota. This exposure would peak in September 2027 at SDR 8,774 million (432% of quota), nearly twice the average for recent EFF programs.
The IMF highlighted the risks to Pakistan’s debt sustainability, citing high public debt, large financing needs, low foreign reserves, and sociopolitical challenges as key factors that could undermine policy execution and debt repayment.
Ensuring Pakistan’s ability to meet its debt obligations depends on restoring fiscal and external stability through robust and sustained policy measures. This includes fiscal consolidation, building external assets, and implementing structural reforms aimed at fostering long-term economic growth.
In terms of external financing, the IMF projects that multilateral institutions will disburse around $14 billion to Pakistan between FY25 and FY28. This includes $7.1 billion from the World Bank and $5.6 billion from the Asian Development Bank (ADB). Bilateral creditors are also expected to maintain their financial commitments, with modest short-term borrowing from commercial banks expected in FY25 and FY26. Pakistan is anticipated to return to international bond markets by mid-FY27, signaling a restoration of credibility.
The IMF-backed program is currently fully funded, with firm financing commitments in place for the first year and promising prospects for the years ahead. Financing commitments for FY25 include $16.8 billion in rollovers of existing short-term debt and an additional $2.5 billion in new commitments from China, Saudi Arabia, the ADB, and the Islamic Development Bank (IsDB).
Pakistan has also secured firm commitments from its key bilateral partners to continue rolling over existing liabilities, which will help meet the country’s financing needs through the remainder of the program.
Renewals of $6.6 billion in loans from foreign commercial banks, previously extended under the 2019 EFF and 2023 Stand-By Arrangement (SBA), are expected to continue under the new program. This, along with commitments from multilateral lenders, provides essential financial support. However, financing risks remain high, and the IMF emphasized the need for ongoing monitoring to ensure timely and sufficient financing during the program’s review stages.
According to Mohammad Sohail, CEO of Topline Securities, Pakistan gross financing requirement for FY25 stands at $18.8 billion, the lowest in nine years based on IMF data. The average annual financing need over the past nine years was $25 billion. Contrary to popular belief, Pakistan repayment obligations in the coming years are not at record levels.
The decrease in gross financing requirements for FY25 is attributed to a reduced current account deficit of $3.6 billion and relatively lower debt repayments of $15.2 billion. Additionally, the IMF has revised down Pakistan financing needs by a cumulative $4.2 billion over the next three years and $5.2 billion over the next two years due to anticipated improvements in the current account deficit.
