By Staff Reporter
ISLAMABAD: The Finance Ministry rejected reports that the country pays interest rates as high as 8% on external loans, calling such assertions misleading and stressing that the bulk of its public debt comes from concessional financing.
The clarification, issued Sunday, came in response to recent press coverage on the nation’s external obligations, which the ministry said required additional context for a fuller picture.
Pakistan’s total external debt and liabilities reach $138 billion. This total includes public and publicly guaranteed debt, borrowings by public sector enterprises, bank loans, private-sector external debt, and intercompany liabilities to direct investors.
But the ministry drew a sharp distinction, noting that external public debt — the government’s direct borrowings — totals about $92 billion. Of that, nearly three-quarters consists of concessional, long-term financing from multilateral institutions excluding the International Monetary Fund and bilateral development partners. Just 7% is from commercial loans, with another 7% tied to long-term Eurobonds.
“In light of this composition, the claim that Pakistan is paying interest on external loans of ‘up to 8pc’ is misleading,” the ministry said in its statement. “The overall average cost of external public debt is approximately 4pc, reflecting the predominantly concessional nature of the borrowing portfolio.” On interest outflows, the ministry corrected figures cited in some reports, saying public external debt interest payments climbed from $1.99 billion in fiscal year 2022 to $3.59 billion in fiscal 2025 — an 80.4% increase, not the 84% that had been mentioned. In dollar terms, the rise amounted to $1.60 billion, rather than $1.67 billion.
Based on State Bank of Pakistan data, the ministry detailed repayments to key creditors over the period. The IMF received $1.50 billion, including $580 million in interest; Naya Pakistan Certificates saw outflows of $1.56 billion, with $94 million as interest; the Asian Development Bank got $1.54 billion, of which $615 million was interest; the World Bank received $1.25 billion, including $419 million in interest; and external commercial loans totaled nearly $3 billion, with $327 million representing interest.
The ministry emphasised that the uptick in interest payments isn’t solely from a growing debt pile. While the overall stock has edged higher since fiscal 2022, fresh inflows have largely come from concessional multilateral sources and the IMF’s Extended Fund Facility under its current program. That program followed a tough stretch in 2022-23, when balance-of-payments strains drove foreign exchange reserves below one month’s import cover. “In response, the government entered into an IMF EFF arrangement and mobilised financing from multilateral and other concessional partners,” the ministry said. “These measures played a critical role in rebuilding foreign exchange reserves and strengthening the country’s external account position.”
Broader global dynamics have also played a part, according to the statement. The U.S. Federal Reserve’s response to the 2021-22 inflation surge lifted the federal funds rate from 0.75%-1.00% in May 2022 to 5.25%-5.50% by July 2023. Though rates have since eased to around 3.75%, they remain well above 2022 levels, keeping international borrowing costs elevated and feeding into higher external interest payments. The ministry reaffirmed its focus on prudent debt management, transparency, and and improved macroeconomic stability. “Accurate representation of debt statistics is essential to informed public discourse,” it said, urging stakeholders to weigh the full context of Pakistan’s external debt makeup alongside global financial shifts.
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