Pakistan Debt-to-GDP Ratio Set to Drop Significantly by 2028 Under IMF Framework: Finance Ministry Report

Pakistan Debt-to-GDP Ratio is projected to decline sharply over the next three years, according to the latest debt sustainability analysis issued by the Ministry of Finance under the International Monetary Fund (IMF) framework. The report provides a cautiously optimistic forecast, indicating that Pakistan’s fiscal consolidation and economic reforms could bring the debt-to-GDP ratio down from 70.8% in 2025 to 60.8% by 2028.

However, the Ministry warns that persistent challenges such as economic slowdown, rupee depreciation, and high interest rates continue to pose serious risks to the country’s debt sustainability. These risks could delay the pace of improvement unless managed through structural reforms and fiscal discipline.

Pakistan’s Public Debt Surges Past Rs. 84 Trillion

As of June 2025, Pakistan’s total public debt has surpassed Rs. 84 trillion, reflecting an increase of more than Rs. 10 trillion in just one fiscal year. The rise stems from high domestic borrowing costs, currency depreciation, and increased reliance on short-term loans to meet budgetary gaps.

Despite this surge, the Finance Ministry remains confident that the Pakistan Debt-to-GDP Ratio will decline steadily as economic growth stabilizes and fiscal consolidation takes effect. According to the report, the implementation of IMF-backed reforms and improved tax collection will play a critical role in restoring macroeconomic balance.

Debt Sustainability Under IMF Framework

The debt sustainability assessment conducted under the IMF’s framework evaluates Pakistan’s ability to meet its repayment obligations without compromising economic growth. It identifies a number of key indicators — including fiscal balance, primary surplus, interest payments, and external borrowing patterns — to assess the country’s financial resilience.

The report concludes that while Pakistan’s debt remains high but manageable, future stability depends on continued adherence to IMF program conditions. The government’s ability to generate consistent primary surpluses, maintain exchange rate flexibility, and sustain export-led growth will be crucial in lowering the Pakistan Debt-to-GDP Ratio over time.

Macroeconomic Risks: Rupee Depreciation and Interest Rates

The Pakistan Debt-to-GDP Ratio forecast acknowledges several potential risk factors that could challenge fiscal improvement:

1. Rupee Depreciation:
   A weakening rupee increases the cost of servicing foreign debt, which currently accounts for nearly 38% of Pakistan’s total public debt. Every 1% depreciation adds billions in additional repayment costs.

2. High Interest Rates:
   Elevated domestic interest rates, maintained to control inflation, have raised the cost of local borrowing. Debt servicing now consumes over 60% of federal revenue, leaving limited fiscal space for development.

3. Economic Slowdown:
   Sluggish industrial growth and weak export performance could constrain tax revenue, making it harder for the government to meet fiscal targets set under the IMF program.

Despite these concerns, the Finance Ministry insists that proactive monetary management, improved energy sector governance, and better fiscal coordination between federal and provincial governments can mitigate the risks.

Fiscal Strategy to Improve Pakistan Debt-to-GDP Ratio

To bring down the Pakistan Debt-to-GDP Ratio, the Finance Ministry has laid out a clear multi-pronged fiscal strategy focusing on:

1. Strengthening Revenue Collection

The government plans to expand the tax base through digital tracking of transactions, integration of provincial databases, and reduction in tax exemptions. The Federal Board of Revenue (FBR) is also modernizing its systems to boost compliance and transparency.

2. Controlling Expenditure

Strict spending controls are being implemented across ministries to maintain a primary fiscal surplus. Priority expenditures will be limited to development projects with high social and economic returns.

3. Rationalizing Public Debt

Efforts are underway to shift borrowing from short-term domestic instruments to long-term concessional loans from multilateral partners, which carry lower interest rates and longer repayment periods.

4. Enhancing Exports and FDI

The government aims to boost exports through policy incentives, value addition, and regional trade integration. Increased foreign direct investment (FDI), particularly in energy and technology, will help strengthen reserves and ease external debt pressure.

Short-Term Challenges: Rising Debt Servicing Costs

In the short term, Pakistan continues to face pressure from record-high debt servicing obligations. The report highlights that interest payments have risen sharply due to monetary tightening, both domestically and globally.

The Pakistan Debt-to-GDP Ratio is expected to stabilize once borrowing costs decline and inflation eases. The State Bank of Pakistan (SBP) is gradually working toward monetary easing as inflation moderates from over 30% in 2024 to an expected 13–14% in FY2026.

External Debt and Foreign Exchange Vulnerability

The Ministry warns that Pakistan’s external debt remains vulnerable to currency volatility and global financial shocks. Approximately Rs. 32 trillion of the total public debt is denominated in foreign currencies, primarily the U.S. dollar, which makes the economy sensitive to exchange rate fluctuations.

To strengthen foreign exchange resilience, the government plans to:

• Build foreign currency reserves through export earnings and remittances.

• Negotiate debt rescheduling with bilateral partners.

• Diversify borrowing sources to include Islamic finance and bond markets.

• Encourage diaspora investment programs like Roshan Digital Accounts (RDA).

IMF’s Role and Pakistan’s Reform Commitments

The Pakistan Debt-to-GDP Ratio improvement plan is part of broader fiscal reforms tied to Pakistan’s ongoing $7 billion IMF program. The IMF has urged Pakistan to maintain fiscal discipline, enhance tax efficiency, and reduce losses in state-owned enterprises (SOEs).

The Finance Ministry’s report acknowledges that debt sustainability depends heavily on maintaining cooperation with the IMF, ensuring quarterly performance reviews are met, and implementing energy pricing reforms to curb circular debt.

Economic Outlook: Growth and Stability Ahead

Despite fiscal constraints, Pakistan’s medium-term economic outlook shows signs of stabilization. The World Bank recently upgraded Pakistan’s GDP growth projection to 3%, citing improved agricultural output, increased remittances, and better monetary management.

The Pakistan Debt-to-GDP Ratio is expected to improve in tandem, supported by a narrowing fiscal deficit, declining inflation, and stable exchange rates. The report predicts moderate growth averaging 3.5% annually between 2026 and 2028.

Public Financial Management and Transparency

The Finance Ministry emphasized that improving transparency in public debt reporting is central to its strategy. Quarterly debt bulletins will now be published regularly, ensuring compliance with IMF data-sharing standards.

Additionally, Pakistan plans to reduce off-budget liabilities, particularly those linked to power sector arrears, by restructuring energy companies and improving cost recovery mechanisms.

Provincial Coordination and Fiscal Responsibility

The report also highlights the importance of provincial fiscal responsibility in achieving debt reduction goals. Provincial governments have been advised to enhance agriculture income tax collection and control non-development expenditure to support national debt targets.

The Pakistan Debt-to-GDP Ratio improvement plan relies heavily on provinces maintaining fiscal discipline and contributing to the federal primary surplus.

Path Toward Fiscal Stability

The Pakistan Debt-to-GDP Ratio forecast marks a cautiously optimistic turn for the country’s fiscal outlook. While public debt remains high, the IMF-backed reforms, fiscal tightening, and strategic debt management initiatives provide a credible roadmap toward stability.

If current policies continue, Pakistan could see its debt-to-GDP ratio fall by 10 percentage points over the next three years, a significant achievement in restoring investor confidence and strengthening macroeconomic fundamentals.

However, sustained commitment to reforms, political stability, and transparent governance will be essential to maintaining the momentum.

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