The finance ministry has admitted that “public debt dynamics remained a key problem” over the past fiscal 12 months, as the rise in whole public debt was “pushed primarily by greater curiosity funds and change fee actions”. Photograph: file
LAHORE:
The delicate exterior financing system of Pakistan is without doubt one of the fundamental causes for the weak financial construction of the nation, as heavy reliance on overseas loans continues to reveal the financial system to sudden shocks, enterprise leaders and economists stated.
They added that the exterior debt profile stays tilted in the direction of short-term borrowing, leaving little room for coverage errors. “The federal government should instantly start critical negotiations with pleasant nations to safe longer compensation durations and ease stress on overseas change reserves,” stated Raja Waseem Hassan, Vice Chairman of the Pakistan Industrial and Merchants Associations Entrance (PIAF).
In line with Hassan, with out extending the maturity of loans, the danger of recurring balance-of-payments stress will proceed to hang-out the financial system.
Official knowledge exhibits that Pakistan’s whole exterior debt and liabilities stood at round $134.5 billion as of September 2025, with a good portion both short-term or maturing inside just a few years. International change reserves have improved and crossed the $21 billion mark in January 2026; nonetheless, inflows from multilateral establishments and pleasant nations are offering short-term help, whereas compensation obligations will stay heavy all through 2026 and past.
Hassan stated current diplomatic developments, together with nearer ties with Gulf states, studies of potential Saudi and UAE funding, and enhancing relations with the US, are optimistic indicators. Nevertheless, he cautioned that geopolitical alignments can shift rapidly. “Financial energy have to be the actual defend. With out robust buffers and self-reliance, exterior partnerships alone can’t assure stability,” he added.
He identified {that a} neighbouring regional financial system managed to barter higher commerce phrases throughout Trump-era tariff pressures as a result of it had stronger reserves and export diversification. In distinction, restricted export development and a slender industrial base have lowered Pakistan’s bargaining energy.
Pakistan’s exports remained round $32 billion in FY25, far beneath potential, whereas imports continued to outpace export earnings regardless of compression measures. The commerce deficit, although lowered from earlier highs, nonetheless poses structural challenges.
Dr Saleem Ahmed, a senior economist, stated the financial system can’t depend upon rollovers and short-term deposits without end. “Debt maturity extension ought to be handled as a strategic precedence, not a short lived repair. On the identical time, structural reforms in taxation, vitality pricing and industrial productiveness are important to cut back exterior dependence,” he stated.
In line with Ahmed, sustainable development of a minimum of 5-6% yearly is required to stabilise the debt-to-GDP ratio, which has remained near 70% lately.
Financial development has remained modest. The Worldwide Financial Fund (IMF) has projected GDP development of round 3.6% for FY26 below a stabilisation situation, whereas the State Financial institution of Pakistan (SBP) is projecting development within the vary of three.75-4.75%. Whereas inflation has eased from its peak of round 38% in 2023, excessive borrowing prices and tighter financial coverage have slowed industrial enlargement. Personal sector credit score development has remained weak, reflecting cautious enterprise sentiment.
Hassan burdened that the current second gives a chance. With world provide chains step by step shifting and regional connectivity tasks below dialogue, there’s room to reposition exports and entice funding. He argued that navy and strategic significance can improve diplomatic leverage, however with out financial competitiveness, it can’t translate into lasting prosperity.
Each audio system burdened the necessity for higher useful resource allocation throughout the home financial system. They emphasised funding in export-oriented sectors comparable to textiles, info know-how, agricultural processing and lightweight engineering. Enhancing tax assortment with out overburdening current taxpayers, lowering vitality losses and selling value-added exports had been recognized as speedy priorities.
Additionally they expressed hope that policymakers will design contingency plans to cut back reliance on exterior borrowing. Increasing the tax base, specializing in worth addition in export-oriented gadgets, encouraging remittance inflows, which, in line with the SBP, are anticipated to succeed in $42 billion in FY26, and boosting overseas direct funding past the modest $1.5-2 billion annual ranges had been seen as essential steps on this regard.
