Pakistan’s foreign debt doubled over last 10 years

Pakistan’s total external debt almost doubled to $135.1 billion over the decade ending in 2025, according to the World Bank’s Inter­national Debt Report 2026.

The report noted that Pakistan’s external debt increased from $68.673 billion in 2015 to $135.107 billion in 2025. This included public and publicly guaranteed debt of $107.076 billion, private non-guaranteed debt of $17.58 billion and short-term debt of $10.45 billion.

Of the public and publicly guaranteed debt, $56.83 billion was owed to multilateral creditors, $42.43 billion to bilateral creditors and $7.8 billion to private creditors.

China was Pakistan’s largest individual creditor, with $22.4 billion outstanding, followed by the World Bank with $19.2 billion and the Asian Development Bank (ADB) with $16.83 billion.

The report put the average maturity of loans from official creditors at 16 years, with a four-year grace period and an average interest rate of 3.6%. On the other hand, private credit carried an average interest rate of 8.6%, with a three-year repayment period and a one-year grace period.

The Middle East, North Africa, Afghanistan and Pakistan (Menap) region recorded improvements in debt-service and interest ratios. However, its external debt-to-gross national income (GNI) ratio rose from 26.7% to 29.4% in 2025, the largest single-year increase of any region, indicating continued debt accumulation.

In 2025, China extended the maturities on $2 billion in loans to Pakistan, while the International Monetary Fund (IMF) provided $2.3 billion in new disbursements under the Extended Fund Facility and Resilience and Sustainability Facility arrangements to support the country’s long-term economic stability.

Global debt at record high

Overall, the borrowing by low- and middle-income countries (LMICs) surged in 2025, marking the sharpest increase in external debt in four years and a forceful return of private creditors to developing country markets.

External debt climbed 5.5% to a record $9.4 trillion as bond issues rebounded, the US dollar weakened and investors again showed greater willingness to lend. But the reopening of capital markets came at a steep price, especially for the poorest countries, which faced some of their highest borrowing costs in decades.

Debt service payments also rose for a fifth consecutive year. Even so, stronger economic growth helped stabilise some debt ratios and net long-term debt transfers turned positive after years of outflows.

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The increase in external debt was even faster for countries eligible for International Development Association (IDA) financing, rising 8.1% to $1.3 trillion, and for low-income countries, climbing 8.9% to $262.4 billion, the biggest increase since 2020.

A weakening dollar amplified the rise in debt. The dramatic depreciation of the US dollar during the year accounted for 28.2% of the increase in LMICs’ external public and publicly guaranteed debt.

For several of the largest borrowers from concessional windows, currency valuation gains in 2025 not only offset principal payments made during the year but also, in some cases, partially reversed the stock reductions achieved through repayments in 2024, leaving reported balances higher at end-2025 despite continued debt servicing.

Private lending, which is more susceptible to fluctuations in financial market conditions, pricing conditions, and perceived creditworthiness of borrowers, saw a strong rebound in 2025.

LMIC debt stock owed to private creditors increased 5.2% in 2025 to $5 trillion, a significant acceleration from the 0.6% increase recorded in 2024. This increase was due to a combined increase in debt owed to bondholders and debt owed to commercial banks and other private creditors, which increased by 5.7% (to $2.4 trillion) and 4.7% (to $2.7 trillion), respectively.

LMIC economies, measured by gross national income, grew by 5.1%. This strong economic growth encouraged lenders to return to these countries, and many LMIC governments were willing to borrow despite relatively high interest rates. The countries that can least afford it are paying the most to borrow.

Increased borrowing from private creditors hardened lending terms disproportionately for IDA-eligible countries, which faced an average interest rate of 8.2% on new commitments during the year, the highest since the late 1980s. The difference in interest rates that this group of borrowers pays when borrowing from official creditors and rates on debt from private creditors widened significantly over the past decade, from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.

International Bank for Reconstruction and Development borrowers, by contrast, saw improvements in the terms on new commitments, with an improved 5.5% average interest rate, down from 5.8% the previous year.

The report noted that the debt service burdens remain a pressure point for LMICs. Total debt service payments (interest plus principal) rose for the fifth year in a row, increasing 1.9% to $1.4 trillion in 2025.

Payments to private creditors drove the increase, with payments to bondholders rising 13.7% to $363.1 billion.

Between 2022 and 2025, LMICs paid about $436.1 billion more in debt service than they received in new financing. However, the trend reversed in 2025: long-term debt flows shifted from a net outflow of $118.4 billion in 2024 to a net inflow of $45.4 billion.