Pakistan is set to confront another tough year of external debt servicing in FY26, with total repayments reaching $25.9 billion—comprising $22 billion in principal and $4 billion in interest—according to Topline Securities. The country must secure $10 billion in net external financing, factoring in rollovers and refinancing.
State Bank of Pakistan (SBP) Governor Jameel Ahmed, during a recent monetary policy briefing, projected foreign exchange reserves to rise to $15.5 billion by December 2025 and $17.5 billion by June 2026. Proceeds from potential Eurobond or Sukuk issuances would supplement these targets. Pakistan is also scheduled to repay $1.8 billion in FY26 due to maturing Eurobonds worth $800 million and $1 billion.
Encouragingly, the composition of Pakistan’s external debt has improved. Multilateral lenders now hold 50% of the public external debt, up from 43% in June 2022. Debt maturity profiles have also become more favorable. To meet repayment needs, Islamabad is expected to again seek rollovers from allies like China, Saudi Arabia, and the UAE, as in FY25. Analysts remain cautiously optimistic due to Pakistan’s current account surplus and rising reserves.
Governor Ahmed also revealed a new housing scheme, approved by the ECC and pending cabinet nod. It aims to boost housing sector activity and will soon be circulated to banks. Additionally, SBP reportedly purchased $20 billion from the interbank market over the past three years, including around $9 billion in FY25 alone.
Despite a cooling inflation rate, the SBP’s decision to maintain a high policy rate has drawn criticism. With a real interest rate of 7.8%, Pakistan ranks among the highest in the region, discouraging private investment. Regional peers like India, China, and Vietnam maintain significantly lower real rates, enabling greater industrial and economic competitiveness.
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