Pakistan’s external debt servicing to fall to 9-Year low in FY27
Pakistan's external debt servicing burden is estimated at 115% of its foreign exchange reserves in fiscal year 2026. The ratio measures external public debt repayments due within one year as a percentage of the country's foreign exchange reserves held by the State Bank of…
Intelligence analysis by Llama
Pakistan's external debt servicing burden is estimated at 115% of its foreign exchange reserves in fiscal year 2026. The ratio is expected to improve significantly in FY27, falling to between 55% and 65%, which would be its lowest level in nine years.
Imagine Pakistan has a big bill to pay to other countries for the money it borrowed. The bill is very big, but it's expected to get smaller in the next year, which is good news for Pakistan's economy.
Analysis
External Debt Servicing Ratio: A Measure of Economic Stability
Pakistan's external debt servicing burden is estimated at 115% of its foreign exchange reserves in fiscal year 2026. This ratio measures external public debt repayments due within one year as a percentage of the country's foreign exchange reserves held by the State Bank of Pakistan. A lower ratio indicates stronger foreign exchange coverage.
Improvement in FY27: A Positive Trend
However, the ratio is expected to improve significantly in FY27, falling to between 55% and 65%, which would be its lowest level in nine years. This improvement is attributed to the repayment of UAE deposits, which pushed up the country's external debt servicing obligations in FY26.
Economic Implications
Pakistan's external debt servicing is expected to remain between $11 billion and $12 billion in FY27, while the country's foreign exchange reserves are projected to cross the $20 billion mark by June 2027. This improvement in foreign exchange reserves will provide a cushion against external shocks and enhance the country's ability to service its external debt.
Conclusion
The improvement in Pakistan's external debt servicing ratio is a positive trend for the country's economic stability and foreign exchange coverage. It is essential to continue this trend and maintain a stable external debt servicing ratio to ensure the country's economic stability and growth.
Key points
- Pakistan's external debt servicing burden is estimated at 115% of its foreign exchange reserves in fiscal year 2026.
- The ratio is expected to improve significantly in FY27, falling to between 55% and 65%, which would be its lowest level in nine years.
- Pakistan's external debt servicing is expected to remain between $11 billion and $12 billion in FY27.
- The country's foreign exchange reserves are projected to cross the $20 billion mark by June 2027.
If the trend continues, Pakistan's foreign exchange reserves will increase, providing a cushion against external shocks and enhancing the country's ability to service its external debt.
However, if the repayment of UAE deposits is delayed or if there are other external shocks, the external debt servicing ratio may not improve as expected, which could have negative implications for Pakistan's economy.
