Weakening dollar poses fresh risks to Pakistan’s external debt profile

With increased risk of downslide of the US dollar against other currencies, resulting in pushing up Pakistan’s external debt liabilities, Islamabad’s external debt so far consists of 56 per cent from multilateral and bilateral loans out of the total debt of $92 billion.
Pakistan’s external debt and liabilities hovered around at $130 bn in the last few years because of strengthened US dollar against other currencies such as Euro, Japanese Yen (JPY), and Great Britain Pounds (GBP) etc., but in the last few days, the US dollar started weakening, raising the possibility that Pakistan’s external debt-to-GDP ratio is likely to explode in this quarter if the recent trends in currencies persists.

However, the Ministry of Finance in the Debt Policy Statement, going to submit before the parliament, stated that external debt increased by 6pc YoY to stand at $91.8 billion as on end June-25, reflecting an increase of $5 billion. During Q1-FY-26, it declined slightly by 0.4pc (USD 0.35 billion) to stand at USD 91.4 billion on the end of September 2025. A major increase in external debt came from multilateral development partners (including IMF), which increased by 8.7pc, almost USD 4 billion. Borrowing from commercial banks was by USD 1.6 billion, largely due to a USD 1 bn loan secured against an ADB Policy-Based guarantee.