IMF Forecasts Pakistan’s External Debt to Soar Above $140 Billion in FY23

The International Monetary Fund (IMF) has projected Pakistan’s external debt to reach $140.959 billion in 2022-23, up from $130.127 billion in 2021-22.

The IMF, in its report “Seventh and Eighth reviews under the extended arrangement under the extended fund facility, requests for waivers of nonobservance of performance criteria, and extension, augmentation, and rephasing of access,” has projected Pakistan’s domestic debt at Rs. 31.085 trillion for 2022-23 and Rs. 33.540 trillion for 2023-24.

The report noted that Pakistan’s public debt continues to be judged as sustainable with strong policies and robust growth, but with greater uncertainty, in part because the fiscal relaxation in H2FY22 prevented the debt ratio reduction projected at the time of the sixth review. The debt-to-GDP ratio is now projected to rise from 77.9 percent at end-FY21 to 78.9 percent at end-FY22 before falling to around 60 percent by end-FY27, assuming the adjustment efforts in the context of the EFF program are fully carried out.

While gross financing needs (GFN) remain elevated over the near term amid sizeable fiscal deficits and limited progress in lengthening maturities, GFNs are projected to decline over the medium term—reflecting programmed fiscal consolidation and efforts to enhance cash and debt management—reaching 17.2 percent of GDP by FY27.

Higher interest rates, a larger-than-expected growth slowdown due to policy tightening, pressures on the exchange rate, renewed policy reversals, slower medium-term growth, and contingent liabilities related to SOEs pose significant risks to debt sustainability.

Public debt is projected to fall by almost 7 percentage points of GDP to 72.1 percent of GDP at the end-FY23, against a tighter fiscal stance and as inflation erodes the value of local currency debt. This follows an increase in the debt-to-GDP ratio from 77.9 percent at end-FY21 to 78.9 percent at end-FY22 on account of the large fiscal deficit and a depreciating exchange rate despite low real effective interest rates.

Supported by the planned fiscal adjustment and robust growth public debt is projected to follow a downward path towards 60 percent of GDP by FY27, with external debt declining toward 25 percent of GDP.