Pakistan’s federal budget for the upcoming fiscal year reveals a staggering Rs8.206 trillion allocated for debt servicing—46.7% of the total Rs17.573 trillion budget. This marks an 8.26% reduction from the revised Rs8.945 trillion spent in FY2024, but the colossal sum still dominates government expenditures, leaving minimal room for essential public services. Domestic debt repayments alone account for Rs7.197 trillion, while foreign loan obligations stand at Rs1.009 trillion, highlighting the country’s deepening debt trap.
By March 2024, Pakistan’s total public debt had ballooned to Rs76.01 trillion (US$269 billion)—more than quadrupling over the past decade. This includes Rs51.52 trillion in domestic debt and Rs24.49 trillion in external liabilities, pushing the debt-to-GDP ratio to 66.27%—above the legal limit set by the Fiscal Responsibility and Debt Limitation Act (FRDLA). In just the first nine months of FY25, the government spent Rs6.44 trillion on interest payments, consuming 66% of the full-year target, with Rs5.78 trillion going to domestic lenders and Rs656 billion to foreign creditors.
Despite the Finance Ministry’s claims of improved cash-flow management, Pakistan remains stuck in a borrowing-repayment cycle that stifles private investment, weakens the rupee, and fuels inflation. External financing inflows during July-March FY25 totaled $5.07 billion, primarily from multilateral lenders ($2.8 billion) and commercial sources ($2.01 billion). However, the country failed to access international capital markets, issuing no global bonds during this period.
While Pakistan secured $5.07 billion in external inflows, repayments surged to $5.636 billion, creating a net outflow. Major repayments included $2.828 billion to multilateral creditors, $1.565 billion to bilateral partners, and $1.243 billion to commercial lenders, further depleting foreign exchange reserves. With debt servicing consuming nearly half the budget, experts warn that without structural reforms and sustainable financing, Pakistan’s fiscal crisis will only deepen.