Pakistan has received more than $3 billion in foreign assistance during the first five months of fiscal year 2026 (July-November 2025), primarily in the form of loans. This adds to the country’s already substantial external debt stock, estimated at around $130-135 billion as of late 2025. While these inflows provide short-term relief for foreign exchange reserves, the heavy reliance on debt financing raises concerns about future repayment sustainability.
Surge in Loans: $2.52 Billion Added to Debt Stock
Of the total disbursements exceeding $3 billion, approximately $2.52 billion came as loans—a 46% increase from the same period last year—while grants fell sharply by 43% to just $54 million. Multilateral institutions led with $1.26 billion in loans and grants, including major contributions from the Islamic Development Bank ($383 million), World Bank’s IDA ($343 million), ADB ($242 million), and IBRD ($182 million). Bilateral loans totaled $808 million, notably a $500 million oil facility from Saudi Arabia and support from China. Diaspora investments in Naya Pakistan Certificates contributed nearly $966 million, which are debt-like instruments. These new loans directly increase Pakistan’s external obligations, pushing the debt burden higher amid limited grant support.
Future Repayment Pressure: Risk of Debt Trap Looms
Pakistan faces significant repayment challenges ahead, with external debt servicing projected to consume a large portion of exports and revenues. For FY26, gross external repayments are estimated at around $20 billion, including rollovers of bilateral deposits. Debt servicing already absorbs nearly half of the federal budget in some years, crowding out spending on development and social sectors. With external debt at over 30% of GDP and ongoing reliance on fresh borrowing to repay old debts, analysts warn of heightened vulnerability to economic shocks, currency devaluation, and potential debt distress if export growth and remittances do not accelerate. Sustained rollovers from allies like China and Saudi Arabia remain critical, but long-term fiscal reforms are essential to ease the repayment burden.