KARACHI: Pakistan faces another challenging year of external debt servicing in FY26, requiring significant rollovers to manage repayments totalling $25.9 billion, including $22bn in principal and $4bn in interest.
According to a report by Topline Securities, the country will need to arrange a net financing of $10bn, comprising $6bn in principal and $4bn in interest, after accounting for expected rollovers and refinancing.
In a briefing to analysts and researchers after announcing a status quo in the monetary policy on Wednesday, State Bank Governor Jameel Ahmed said foreign exchange reserves are projected to reach $15.5bn by December 2025 and $17.5bn by June 2026. Any proceeds from international bond issuances, such as Eurobonds or Sukuk, would be over and above this target.
The governor added that Pakistan is due to repay $1.8bn in FY26 on account of two maturing Eurobonds — one of $800 million and the other of $1bn.
Islamabad must arrange $10bn net external financing in FY26; SBP says total repayments reach $26bn
Encouragingly, the country’s external debt composition has improved, with multilateral lenders now accounting for 50pc of public external debt (combined State Bank and government holdings), up from 43pc in June 2022. Debt maturity profiles have also seen improvement.
To manage repayments, Pakistan is expected to once again seek rollovers from key partners including China, Saudi Arabia, and the UAE, as it did in FY25. Analysts remain optimistic about the government’s ability to secure these rollovers, citing a current account surplus and stronger foreign exchange reserves.
Housing scheme
Governor Ahmed also announced that a new Housing Scheme has been finalised in consultation with the SBP. Approved by the Economic Coordination Committee (ECC) and awaiting cabinet ratification, the scheme will soon be circulated to banks to stimulate lending and activity in the housing sector.
Topline’s report revealed that the SBP purchased $20bn from the interbank market over the last three years through direct intervention. While no official figure was released for FY25, banking sources estimate the SBP bought around $9bn in the last fiscal year to stabilise reserves.
The governor affirmed that remittance-linked incentives for financial institutions would continue, in line with directives from the Prime Minister. However, the government has decided to rationalise these incentives to banks going forward.
No stimulus for industry
The central bank’s decision to maintain a high policy rate has drawn criticism from the business community. Younus Dagha, Chairman of the Policy Research and Advisory Council (PRAC), said the decision fails to provide the stimulus needed for economic revival.
Despite a disinflationary trend, the real interest rate stands at 7.8pc —among the highest in the region. This is seen as a major constraint on private sector investment, industrial growth, and overall competitiveness. In contrast, regional peers maintain lower real rates: India (3.4pc), China (2.9pc), Bangladesh (1.5pc), Vietnam (0.9pc), and Indonesia (3.4pc).
Published in Dawn, July 31st, 2025
