KARACHI: Pakistan’s external debt and liabilities have surged to approximately $130 billion, with a significant portion, nearly 58%, denominated in US dollars, according to the government’s latest Debt Management Strategy (DMS) for 2026-2028.
The report highlights the country’s heavy reliance on a handful of major currencies, underscoring the challenges of managing external liabilities in a volatile global economic environment.
“The external debt portfolio is predominantly denominated in a few major currencies. The United States Dollar leads with a 57.8% share, followed by Special Drawing Rights (SDRs) at 29.88%, Chinese Yuan at 5.21%, Japanese Yen at 3.95%, and the Euro at 2.62%,” the DMS revealed.
To address its growing debt burden and reduce reliance on traditional sources, the Finance Ministry has outlined a strategy to diversify external financing. While multilateral and bilateral sources offering concessional terms and longer maturities will remain the backbone of external borrowing, Pakistan plans to re-enter international capital markets with innovative instruments such as Panda Bonds, Sustainable Bonds, and Eurobonds.
A $1 billion Panda Bond program has already been established, with the first tranche of $200 million to $ 250 million scheduled for issuance in FY2026. These Renminbi-denominated securities, issued in the Chinese market, are expected to lower borrowing costs, reduce refinancing risks, and strengthen Pakistan’s financial integration with China.
Additionally, the government is preparing to launch Sustainable Bonds, which will be backed by a newly developed Sustainable Financing Framework. Currently under cabinet review, this framework will guide the structure, maturity, and repayment terms of future sustainable bond issuances.
While access to Eurobond markets has been constrained since 2022 due to unfavorable global conditions, the DMS outlines a plan for re-entry as economic and market conditions improve.
To mitigate foreign exchange risks, the government plans to employ hedging instruments and develop domestic futures and interest rate swap markets. Innovative solutions, such as debt-for-nature swaps, are also under consideration. These swaps would allow Pakistan to align its debt management with climate goals, offering a dual benefit of financial relief and environmental progress.
On the domestic front, debt will remain the primary source of government financing during the strategy period. Under the IMF program, the ceiling for government guarantees is capped at Rs. 5,600 billion as of June 2025. By March 2025, guarantees worth Rs. 405 billion, equivalent to 0.35% of GDP, had been issued, bringing the total outstanding stock to Rs. 4,548 billion.
These guarantees include support for state-owned enterprises such as the Trading Corporation of Pakistan (TCP) and the Pakistan Agricultural Storage and Services Corporation (PASSCO) for commodity-related financing.
