Pakistan Debt Interest Outflows Up 80.4% in Recent Years, Finance Ministry Clarifies

The Ministry of Finance in Islamabad has dismissed claims that Pakistan was paying up to eight percent interest on its external loans as “misleading,” clarifying instead that public external debt interest outflows have surged by 80.4 percent between fiscal years 2022 and 2025, not the reported 84 percent.

The ministry issued a statement in response to recent press commentary highlighting that the figures often cited need context for an accurate understanding of Pakistan’s debt situation and associated expenses. Currently, the total external debt and liabilities stand at $138 billion, covering public and publicly guaranteed debt, debts owed by public sector enterprises (both guaranteed and non-guaranteed), bank borrowings from private sectors, external private-sector debt, and intercompany liabilities to direct investors.

It’s important to distinguish between this aggregate figure and Pakistan’s total external public (government) debt, which amounts to approximately $92 billion. Nearly 75 percent of this total external public debt consists of concessional and long-term financing obtained from multilateral institutions (excluding the International Monetary Fund, or IMF), bilateral development partners, and other donors.

Only about 7 percent of this debt represents commercial loans, while another 7 percent pertains to long-term Eurobonds. These figures suggest that Pakistan is not burdened with high-interest external loans, contrary to reports suggesting up to eight percent interest payments on these external debts.

The finance ministry further emphasized the context behind the data. Public external debt interest outflows have risen from $1.99 billion in fiscal year 2022 to $3.59 billion in fiscal year 2025, which represents an increase of 80.4 percent—down from the reported 84 percent. In absolute terms, interest payments have grown by $1.60 billion rather than $1.67 billion.

The ministry also referenced State Bank of Pakistan’s records to provide a more comprehensive picture of debt servicing payments during this period. Payments to specific creditors included: IMF receipts amounting to $1.50 billion, with $580 million in interest; Naya Pakistan Certificates payments totaling $1.56 billion, including $94 million in interest; the Asian Development Bank receiving $1.54 billion with $615 million in interest; and World Bank receipts totaling $1.25 billion, inclusive of $419 million in interest.

Moreover, external commercial loans amounted to nearly $3 billion, which represented $327 million in interest payments. While the absolute total of debt servicing has risen, this increase cannot be solely attributed to an expansion in the debt stock; rather, it reflects a shift towards concessional multilateral sources and inflows from the IMF’s Extended Fund Facility (EFF) under its ongoing support program.

During 2022-23, Pakistan faced heightened balance of payments pressures, leading to foreign exchange reserves falling below one month of import cover. In response, the government entered into an IMF EFF arrangement and mobilized financing from multilateral and other concessional partners. These measures played a critical role in rebuilding foreign exchange reserves and strengthening the country’s external account position.

While interest payments have increased in absolute terms, this rise cannot be solely attributed to an expansion of the debt stock. The increase is more reflective of prevailing global interest rate dynamics. Following the inflation surge between 2021-22, the US Federal Reserve raised the federal funds rate from 0.75–1.00 percent in May 2022 to 5.25–5.50 percent by July 2023. Although rates have since moderated to around 3.75 percent, they remain significantly higher than 2022 levels, contributing to elevated international borrowing costs and resultant higher external interest payments.

The finance ministry underscored that the government remains committed to prudent debt management, transparency, and the continued strengthening of Pakistan’s macroeconomic stability. Accurate representation of debt statistics is essential for informed public discourse, encouraging stakeholders to consider the full context of Pakistan’s external debt structure and evolving global financial conditions.