Pakistan’s external debt-to-GDP ratio drops to 26 per cent, lowest in six years

WEB DESK: Pakistan’s external debt-to-GDP ratio has fallen to a six-year low of 26 per cent by the close of the last fiscal year (FY24), marking a significant reduction largely driven by a slower increase in foreign currency borrowings.

According to data released by the State Bank of Pakistan (SBP), the nation’s total external debt and liabilities saw a modest rise of 3.4 per cent during FY24.

As of June 30, 2024, Pakistan’s total external debt and liabilities stood at $130 billion, up from $126.142 billion on June 30, 2023, representing an increase of $4.6 billion.

The public external debt, excluding foreign exchange liabilities, also showed a slight uptick, growing by $2 billion from $84.047 billion in FY23 to $86 billion by the end of FY24.

According to Business Recorder, despite the increase in absolute terms, the ratio of external debt to GDP has been on a downward trajectory.

Analysts at Topline Securities highlighted that the external debt to GDP ratio has declined to 26 per cent by the end of FY24, down from 32 per cent in FY23. This decline is attributed to a relatively smaller rise in foreign currency borrowings compared to local currency obligations.

However, the increasing external debt to export ratio remains a point of concern. This ratio, which reflects the pace at which external debt is growing relative to exports, has decreased to 253 per cent in FY24, a reduction from its peak of 314 per cent in FY20.

Looking ahead, the external debt servicing to foreign exchange reserves ratio stands at 195 per cent for FY24 but is expected to decrease to 89 per cent in FY25. Additionally, Pakistan’s overall debt to GDP ratio has also dropped to 70 per cent in FY24, aided by higher nominal GDP growth driven by inflation.

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