China has emerged as Pakistan’s largest creditor, holding a significant 22% of the country’s external debt, which equates to approximately $28.8 billion, according to the World Bank’s International Debt Report. This marks a notable shift in Pakistan’s external financial obligations, with China surpassing other key bilateral lenders, including Saudi Arabia.
Saudi Arabia is now the second-largest bilateral lender to Pakistan, contributing $9.16 billion, or 7% of Pakistan’s total external debt. On the multilateral front, the World Bank and the Asian Development Bank (ADB) are major contributors, holding 18% and 15% of Pakistan’s external debt, respectively. These figures underscore Pakistan’s heavy reliance on both bilateral and multilateral lenders for external financial support.
The report provides a comprehensive picture of Pakistan’s mounting external debt, which reached a staggering $130.85 billion in 2023. This debt load represents a significant portion of the country’s economic output, accounting for 352% of its total exports and 39% of its gross national income (GNI). This fiscal strain has exacerbated Pakistan’s vulnerability, with debt servicing costs reaching 43% of exports and 5% of GNI. These figures reflect a pressing need for fiscal reform and improved debt management strategies.
As of 2023, the breakdown of Pakistan’s external debt revealed that 45% is owed to bilateral lenders, while 46% is owed to multilateral institutions. The remaining 9% is attributed to private lenders, mostly in the form of bondholders. The World Bank’s report also highlighted Pakistan’s long-term external debt stock, which stood at $110.44 billion, with a substantial portion owed to the International Monetary Fund (IMF) at $11.53 billion. In addition, Pakistan’s short-term external debt amounted to $8.88 billion, further compounding the fiscal challenges faced by the nation.
The World Bank’s report also pointed out the global increase in debt servicing costs, which have climbed to a 20-year high. Developing countries, including Pakistan, are struggling to cope with rising debt servicing costs, with a collective expenditure of $1.4 trillion in 2023. Among low- and middle-income nations, Pakistan’s interest payments are particularly concerning, accounting for 43% of its exports—well above the global average. This has placed immense pressure on Pakistan’s fiscal position and further underscores the need for comprehensive debt restructuring and financial reform.
The report also highlighted the significant increase in debt servicing costs in South Asia, with Pakistan making the second-largest interest payments in the region. Rising interest rates and tightening fiscal space have left many countries, including Pakistan, in precarious fiscal positions. These conditions have made it increasingly difficult for Pakistan to manage its external debt sustainably.
Additionally, the World Bank noted that Pakistan, along with Egypt and Ukraine, had significantly increased its repurchases from the IMF in 2023. In a more positive light, Pakistan ranked fifth globally in remittances, receiving $26.6 billion in personal remittances during the year. While remittances provide a critical source of income for Pakistan, the country’s growing external debt continues to cast a shadow over its economic outlook, necessitating urgent action to stabilize its fiscal situation.