The Ministry of Finance, in its latest report on debt, has termed economic slowdown as the biggest threat to debt sustainability. According to the report, changes in interest rates and exchange rates can further increase the debt burden, while external economic shocks and climatic effects are also adding to the risks.
This report has been prepared under the framework of the International Monetary Fund (IMF), which presents a detailed review of the structure, ratio and sustainability of Pakistan’s overall debt.
According to the report, the debt-to-GDP ratio is expected to decline from 70.8 percent to 60.8 percent in the next three years, while debt is expected to remain sustainable between 2026 and 2028.
The Finance Ministry document said that a saving of Rs888 billion was recorded in mark-up payments last year, but financing requirements are expected to remain high at 18.1 percent by 2028.
According to the report, 67.7 percent of the total debt consists of domestic debt, while 32.3 percent is external debt, most of which is concessional debt obtained from bilateral and multilateral sources.
The Finance Ministry pointed out that 80 percent of the debt was obtained at floating rates, due to which interest rate risks still persist. It was further stated that short-term debt is 24 percent, the refinancing of which is a major challenge.
According to the report, the floating external debt ratio is 41 percent, indicating a medium level of risk. The Ministry of Finance has warned that if the current account deficit increases or foreign exchange reserves decrease, debt sustainability may be affected.
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