Pakistan's external debt burden intensified in 2025 as the International Monetary Fund (IMF) provided $2.3 billion in fresh financing under its Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF), while China extended the maturity of $2 billion in existing loans to the country, according to a report by Bangkok-based research outlet Page 3 News. The dual intervention underscores the depth of Pakistan's fiscal fragility and its continued dependence on external creditors for economic survival.

Pakistan's Debt Within a Wider Global Crisis

Pakistan's predicament is not isolated — it unfolds against a backdrop of surging debt across the developing world. External debt among low- and middle-income countries (LMICs) reached an unprecedented $9.4 trillion in 2025, climbing 5.5 per cent year-on-year — the largest annual rise in four years, according to the report. The surge was driven by a combination of increased bond issuance, a weaker US dollar, and renewed investor appetite for lending to emerging economies.

Notably, the return of private capital to international markets came at a steep price. The world's poorest nations reportedly faced borrowing costs at their highest levels in decades, creating a paradox where greater access to credit simultaneously deepened long-term vulnerability.

Debt-Servicing Pressure Hits Five-Year High

Debt-servicing obligations rose for the fifth consecutive year, with no sign of plateauing. Countries eligible for financing from the International Development Association (IDA) faced an even sharper climb — their external debt rose 8.1 per cent to $1.3 trillion. Among low-income countries specifically, external debt jumped 8.9 per cent to $262.4 billion, the steepest increase since 2020.

These figures suggest that the countries with the most limited fiscal capacity are absorbing debt at the fastest rate — a structural imbalance that analysts warn could trigger fresh sovereign stress events in the near term.

Private Sector Borrowing Rises, But at a Cost

LMIC economies recorded growth of 5.1 per cent in private sector loans measured by Gross National Income (GNI). Stronger economic performance in several of these economies encouraged lenders to re-engage, and a number of governments continued borrowing despite relatively elevated interest rates, according to the report.

However, the report flags a critical asymmetry: countries with the least capacity to absorb additional debt are confronting the highest borrowing costs. The growing dependence on private financing has made debt structurally more expensive for IDA-eligible nations, raising questions about long-term debt sustainability.

What This Means for Pakistan's Economic Stability

For Pakistan, the combination of IMF-led multilateral support and China's bilateral loan rollovers has prevented an outright default, but critics argue these measures merely delay structural adjustment rather than resolve underlying fiscal weaknesses. Pakistan's reliance on external financing — from both multilateral lenders and bilateral partners — reflects years of import-dependent growth, a narrow tax base, and recurring current account deficits.

This is the latest in a series of IMF engagements with Islamabad, which has historically struggled to implement the structural reforms attached to Fund programmes. The long-term trajectory, the report cautions, remains uncertain as rising repayment obligations and expensive private financing continue to pose serious challenges to economic stability.