Pakistan’s external debt keeps growing. Total external debt and liabilities stand at about $138.8 billion, including government and publicly guaranteed debt, bank borrowings, private-sector external debt and intercompany liabilities. External public debt alone accounts for approximately $92.8bn, four times larger than the sovereign foreign exchange reserves of $21.47bn.
The repayment burden also remains significant. The country’s external debt servicing for FY27 is projected at $21.5bn. Of the $18bn principal falling due, about $10-11bn is expected to be rolled over or refinanced. This leaves a net principal repayment of roughly $7.5bn. The State Bank governor has indicated that actual cash outflows are likely to come in closer to $7bn, helped by nearly $6bn of rollovers already secured in July. Even so, the requirement continues to place pressure on an economy struggling to build a durable foreign-exchange cushion. TheSBP’s foreign exchange reserves have risen to $21.47bn, supported partly by a $3bn Eurobond issuance and overall reserves including those held by commercial banks now total $26.86bn.
The government is seeking to ease pressures on forex reserves by replacing short-term obligations with longer-term financing and increasing reliance on multilateral lenders. A more favourable maturity profile can provide breathing space.
Pakistan has recently reached an agreement with the International Islamic Trade Finance Corporation to renegotiate the pricing and volume of its remaining financing tranche. The country has also discussed infrastructure priorities with the OPEC Fund and reviewed Panda Bond issuance and plans for repeat sovereign issuances with China. Together, these initiatives form part of a broader effort to secure more favourable financing terms and extend maturities without increasing external debt.
Pakistan needs foreign investment, diversified exports and remittances to deal with mammoth task
The World Bank’s $40bn Country Partnership Framework for 2026-35 offers another opportunity to support this adjustment. The decade-long framework envisages $20bn in sovereign financing through the International Development Association and the International Bank for Reconstruction and Development, alongside $20bn in private-sector investment mobilisation through the International Finance Corporation.
However, the framework is neither an immediate capital injection nor an equivalent amount of foreign direct investment. Its ultimate contribution depends on actual disbursements, private investment mobilisation and the economic returns generated by supported projects.
Attracting foreign investment remains an uphill task for Pakistan. While seven newly approved cement plants promise $700 million in potential capital, announced projects and memorandums of understanding cannot be treated as realied inflows. The true measure of success lies in deployed capital that boosts production, employment, and export earnings. Unfortunately, net foreign direct investment shrank 34pc to $1.67bn in FY26. Furthermore, investment remains heavily concentrated, with China, Hong Kong, and the United Arab Emirates accounting for nearly 88pc of net FDI. This narrow base leaves Pakistan’s external accounts deeply vulnerable to policy shifts within just a few countries.
Pakistan’s export performance remains another source of concern. Merchandise exports fell 5.9pc to $30.14bn in FY26, while exports of goods and services totalled about $40.9bn. Against external debt and liabilities of $138bn, annual exports of goods and services amount to less than one-third of the outstanding stock.
This comparison illustrates the scale of the challenge, although export earnings must also finance essential imports and production inputs. The objective is therefore not simply to increase gross receipts but to generate a larger and more resilient net contribution to the external account.
The government aims to raise exports to $63bn by 2030 and $100bn by 2035 through diversification, industrial clusters and commercial diplomacy. Achieving the first target would require annual earnings from goods and services to rise by $22.1bn from the FY26 base of $40.9bn.
The task is complicated by the concentration of exports in textiles and weakness in several non-textile categories. Non-textile exports reportedly fell 13.77pc to $12.21bn in FY26, underlining the need to develop new products and markets.
A durable export expansion requires investment in technology, workforce skills, product quality and supply-chain integration. Pakistan must also improve access to regional markets and make domestic production more competitive. Periodic incentives and currency adjustments may offer temporary relief, but they cannot compensate for low productivity, unreliable energy and weak technological capabilities. Without a broader, higher-value export base, ambitious targets will remain difficult to achieve.
Workers’ remittances provide a much stronger source of foreign exchange. Inflows reached a record $41.6bn in FY26, up 8.6pc from $38.3bn a year earlier. They increased by a further 14pc year-on-year to $10.87bn in the first quarter of FY27, offering substantial support to the external account.
Annual remittances now exceed merchandise export earnings and are broadly comparable to combined exports of goods and services. They also equal about 30pc of the $138bn external debt and liabilities stock. These comparisons demonstrate the importance of remittances, but they do not mean that the entire amount is available for debt repayment. Remittances, however, remain exposed to employment conditions, immigration policies, oil prices and labour demand in host countries. Nor can they replace investment and export growth.
Pakistan needs a coordinated strategy built on three mutually reinforcing pillars: productive foreign investment, diversified exports and resilient remittances. Investment must expand domestic capacity and create jobs; exports must generate higher and more sustainable foreign exchange earnings; and remittances should complement these efforts rather than become a substitute for them.
Published in Dawn, The Business and Finance Weekly, October 19th, 2026
