China, World Bank, ADB dominate Pakistan’s external debt landscape

ISLAMABAD: China has emerged as Pakistan’s largest creditor, with nearly $29 billion in loans. Pakistan is also among the top three recipients of loans from the International Monetary Fund (IMF) this year, as highlighted in a report released by the World Bank.

The ‘International Debt Report’, indicates that Pakistan’s high debt-to-export and debt-to-revenue ratios signify a deteriorating fiscal position. The report estimates Pakistan’s total external debt, including IMF liabilities, at $130.85 billion in 2023, which represents 352% of its total exports and 39% of its gross national income (GNI). Furthermore, external debt servicing accounted for 43% of total exports and 5% of GNI.

According to the report, China holds the largest share of debt to Pakistan, with a 22% stake (approximately $28.786 billion), followed by the World Bank with an 18% share ($23.55 billion) and the Asian Development Bank with a 15% share ($19.63 billion). Saudi Arabia is noted as the second-largest bilateral lender, contributing 7% of the total debt, or around $9.16 billion.

Of the total external debt, about 45% ($58.88 billion) is owed to bilateral lenders, 46% (approximately $60.2 billion) to multilateral institutions, while the remaining 9% is owed to private lenders, primarily bondholders.

Of the total $130.85 billion, long-term external debt comprises $110.44 billion, the IMF credit and allocations total $11.53 billion, and short-term external debt is $8.878 billion. In 2023, Pakistan received total disbursements of $12.945 billion, while repayments reached $14 billion, including $4.33 billion in interest payments.

The report also highlights that developing countries allocated a record $1.4 trillion to service their foreign debt in 2023, with interest costs soaring to a 20-year high of $406 billion, severely restricted budgets for critical sectors such as health, education, and environmental protection in many countries.

The report points out that the financial strain was particularly severe for the poorest nations, those eligible for loans from the World Bank’s International Development Association (IDA). These countries paid a record $96.2 billion to service their debts in 2023, with principal repayments declining nearly 8% to $61.6 billion but interest costs surging to an unprecedented $34.6 billion—four times higher than a decade ago.

The report further details that South Asia experienced the largest annual increase in interest payments on public and publicly guaranteed debt in 2023, rising by 62% to $12.5 billion, with Bangladesh and India seeing interest payments increase by more than 90%. Pakistan recorded the second-highest interest payments in the region.