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Pakistan faces a significant debt burden, with external debt payments exceeding $24 billion in FY24. This includes $8.7 billion in public debt payments that are not subject to rollover, potentially leading to default if alternative financing is not secured.
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Based on the latest available information, Pakistan is actively working on restructuring its bilateral debt and engaging with the International Monetary Fund (IMF) to address its financial challenges. The country is grappling with significant debt repayment obligations, critical levels of reserves, and record inflation. The finance minister has indicated efforts to restructure or reprofile debt with bilateral creditors, notably without seeking haircuts or approaching Paris Club creditors. This approach aims to manage the $37 billion bilateral debt, of which $23 billion is owed to China.
Pakistan's debt composition includes substantial amounts owed to Chinese financial institutions, alongside pressures from commercial loans and obligations to other countries. From April 2023 to June 2026, Pakistan is faced with the daunting task of repaying $77.5 billion in external debt, a significant challenge for its $350 billion economy. Immediate debt servicing needs, coupled with longer-term repayment pressures, underscore the urgency for restructuring discussions.
Analysts and financial experts have emphasized the necessity of orderly and timely debt restructuring to prevent a default scenario. There is a consensus that without securing additional funding, particularly from the IMF, Pakistan risks default. This situation is further complicated by the political landscape, with the upcoming end of the government's tenure and elections potentially affecting the country's ability to secure an agreement with the IMF.
Considering the critical importance of IMF support and the potential for restructuring efforts with bilateral creditors, especially China, Saudi Arabia, and the UAE, Pakistan's approach to managing its external debt obligations in 2024 appears to be aimed at avoiding default through strategic negotiations and restructuring efforts.