Pakistan Borrowed $27.2b Foreign Loans in FY26 Amid Export Slump
Pakistan secured $27.2 billion in foreign loans during fiscal year 2025-26, including substantial rollovers from China and Saudi Arabia, as the government relied heavily on external financing to support the budget, repay maturing debt, and maintain foreign exchange reserves. According to official data from the Ministry of Economic Affairs, the inflows included $16 billion in fresh loans, $2.2 billion from the International Monetary Fund (IMF), a $5 billion rollover from Saudi Arabia, and $4 billion in Chinese rollovers. Heavy Reliance on Rollovers Supports External Financing The government’s financing strategy remained heavily dependent on the rollover of existing deposits from friendly countries. These rollovers played a crucial role in maintaining Pakistan’s foreign exchange reserves and meeting external financing obligations while easing pressure on the country’s balance of payments. Only a Small Portion Went to Development Projects Official figures show that only $3.4 billion, or around 13% of total external financing, was allocated for development and project financing. The remaining $24 billion was used primarily for budgetary support, debt servicing, and maintaining foreign exchange reserves as the country faced weaker export earnings and higher financing requirements. Export Slowdown Increased Borrowing Needs Pakistan’s exports declined 6% during FY26 to $30 billion, widening the trade deficit and increasing reliance on external lenders. Foreign direct investment (FDI) also remained subdued, falling below $2 billion, limiting alternative sources of foreign exchange inflows. Foreign Exchange Reserves Supported by External Deposits The State Bank of Pakistan’s foreign exchange reserves reached approximately $18.5 billion, largely supported by external rollovers and market purchases. The figures highlight Pakistan’s continued dependence on support from bilateral partners and international financial institutions to maintain reserve adequacy. Saudi Arabia currently maintains around $8 billion in deposits with Pakistan, carrying interest rates of approximately 4% to 4.5%, with these facilities regularly rolled over. China continues to hold around $4 billion in deposits, reportedly carrying interest rates of more than 6%. Multilateral and Commercial Financing Continued Pakistan also received financing from multilateral development partners, including the Asian Development Bank (ADB) and the World Bank, alongside commercial borrowing through Panda Bonds and loans arranged with Chinese and UK-based financial institutions. These funding sources remained an important component of Pakistan’s overall external financing strategy during the fiscal year. IMF Programme Hinges on Continued External Support Officials acknowledge that the success of Pakistan’s IMF programme remains closely linked to continued financial support and rollovers from bilateral partners. Gross external financing requirements are projected to reach approximately $21.2 billion during the current fiscal year before increasing to nearly $30 billion in the following year. Economists continue to warn that Pakistan’s debt-to-GDP ratio and external financing requirements remain above sustainable levels. Although record remittance inflows provided some support during FY26, the current account still slipped into a modest deficit, underscoring the need for stronger export growth, higher foreign investment, and structural economic reforms.
