Pakistan struggling to survive under $134 billion debt mountain

Pakistan has been struggling with a deepening economic crisis for years, marked by mounting external debt pressures, stagnant growth, and structural weaknesses caused by decades of poor governance and over-reliance on external financing, according to a report.

Pakistan’s total external debt stands at approximately $134 billion (as of late 2025 data), representing a heavy load relative to GDP, according to an article in One World Outlook.

It faces external debt repayment challenges to the tune of a staggering $23-26 billion in total servicing needs (including principal and interest) in fiscal year 2025–26, the article observed.

The recent development, where the United Arab Emirates (UAE) rolled over $2 billion of Pakistan’s debt, reflects the precarious nature of Islamabad’s financial management. This short-term fix underscores Pakistan’s ongoing dependence on bilateral rollovers from allies like the UAE, Saudi Arabia, and China to avert immediate default risks.

The country’s foreign exchange reserves have shown some recovery, with total liquid reserves at $21.29 billion as of late January 2026, but these remain vulnerable to maturities and import requirements. The IMF’s $7 billion Extended Fund Facility (EFF), approved in September 2024 alongside the Resilience and Sustainability Facility, has been crucial for stability. The second review was completed in December 2025, unlocking disbursements, but progress depends on reforms like fiscal discipline and state-owned enterprise (SOE) restructuring, the article stated.

The bilateral commitments total around $12 billion in rollovers this year, yet the UAE’s cautious one-month extension signals shifting dynamics, possibly due to higher risk perceptions or geopolitical factors, moving from concessional "brotherly" aid toward more commercial terms, the article points out.

Compounding the debt burden are repeated IMF engagements. Pakistan has cycled through multiple programmes, with the latest EFF emphasising macroeconomic stability, reserve rebuilding, tax base broadening, and SOE reforms. While fiscal performance has improved (e.g., primary surplus targets met), inflation remains sticky, partly due to energy costs and external shocks. The economy grew around 3 per cent in recent periods, with modest projections ahead, but this is insufficient for a population growing rapidly and requiring millions of new jobs annually, the article observes.

Employment trends reveal a stark human cost. Official unemployment has risen, with the rate reaching around 6.9 per cent in 2024-25 (up from 6.3 per cent earlier), marking increases across demographics. The unemployed population surged by 1.4 million (31 per cent) from 2020-21 to 2024-25. Over recent years, hundreds of thousands of Pakistanis have emigrated for work, driven by stagnant wages, limited opportunities, and rising costs. The economy struggles to create the 1.5 million jobs needed yearly, worsened by IMF-mandated austerity (higher taxes, energy tariffs), and disruptions like past floods affecting agriculture and industry, the article points out.