Govt borrowed $27.2b in FY26
The coalition government took over $27 billion in foreign loans during the last fiscal year, including $9 billion in rollovers by China and Saudi Arabia, predominantly to finance the budget, retire debt and build foreign exchange reserves, official statistics showed.
The provisional foreign economic assistance report released by the Ministry of Economic Affairs on Friday, coupled with other public announcements, showed that instead of recording any reduction in foreign loansthe amount increased compared to the preceding year.
According to the Ministry of Economic Affairs, Pakistan received $16 billion in fresh foreign loans in fiscal year 2025-26 ended on June 30. In addition, Pakistan received $2.2 billion from the International Monetary Fund (IMF), $5 billion in rollovers from Saudi Arabia and $4 billion in rollovers from China – three major transactions not reported by the Ministry of Economic Affairs.
Of the $27.2 billion in foreign loans, a staggering $24 billion were obtained for budget financing, external debt repayments and increasing foreign exchange reserves. The Economic Affairs Ministry data revealed that only $3.4 billion, or nearly 13%, was received for project financing.
The central bank's gross foreign exchange reserves of $18.5 billion as of end-June are largely the result of rollovers, refinancing of existing loans and purchase of dollars from the market. This highlights Pakistan's growing reliance on foreign creditors, making economic stability increasingly vulnerable.
Exports plunged 6% in the last fiscal year to $30 billion, according to the Pakistan Bureau of Statistics. This sum is $40 billion less than imports, which keeps the country dependent on foreign lenders. Despite all efforts, foreign direct investment also plunged to below $2 billion.
The foreign economic assistance data was released a day after Finance Minister Muhammad Aurangzeb told The Express Tribune that the country was "good" on the rollover of another $3 billion Saudi debt taken in April this year for three months.
Saudi Arabia has placed a total of $8 billion in cash deposits with Pakistan's central bank, charging 4% to 4.5% interest. The amount is rolled over on maturity, as Islamabad remains unable to repay these loans. With the growing size of cash deposits, the maturity timelines have started shrinking.
The success of the IMF's three-year programme is also hinged upon the rollover of these debts, or else the external financing gap would emerge, which could be a problem in securing IMF board approvals for the next loan tranches.
China has placed $4 billion in cash deposits, charging over 6% interest. China also disbursed $393 million in guaranteed loans in the last fiscal year, used primarily for asset purchases, official data showed.
Pakistan raised $1 billion by floating Panda Bonds and taking private placement against Eurobonds in the last fiscal year. The $255 million Panda Bonds were issued against guarantees given by the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB), as Pakistan's own credit rating remains poor.
The finance ministry managed to secure $1.9 billion in commercial loans from China Development Bank ($1.7 billion) and $200 million from Standard Chartered Bank, London.
The ADB disbursed $1.8 billion, about $400 million less than the preceding fiscal year. Multilateral institutions contributed $7 billion overall, including $2.6 billion from the IMF. But the Economic Affairs Ministry booked only $421 million, while the remaining $2.2 billion for balance of payment support were not made part of the disbursement sheet.
The World Bank released nearly $2 billion in the last fiscal year.
The Islamic Development Bank disbursed $1 billion, and Saudi Arabia gave $1 billion under an oil financing facility secured at 6% interest. However, the facility expired in April this year, and Pakistan is now seeking a $6.7 billion, 15-year deal.
Pakistan's debt-to-GDP ratio and gross financing needs-to-GDP ratio currently exceed sustainable levels. A gross financing need exceeding 15% of GDP is considered unsustainable. The finance ministry's previous projections suggest Pakistan will remain above that threshold at least in the medium term.
For the new fiscal year, the IMF has projected Pakistan's gross external financing requirements at $21.2 billion. For the next fiscal year, the requirements have been shown at $30 billion – the period when the country will not be in the IMF programme, which expires in September next year.
The government also received over $3 billion in loans under the Naya Pakistan Certificate scheme, another expensive form of borrowing.
Pakistan's current account recorded a marginal deficit of $139 million in the last fiscal year, reversing a surplus of $1.84 billion in the previous year, according to data released by the central bank. Record remittances could not stop Pakistan's external account turning negative due to high imports.